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Trading Reaction in Aetna (AET) and Humana (HUM) Post Deal Offers 'Strong Buying Opportunity', Leerink Partners Says

July 7, 2015 7:28 AM EDT
Get Alerts AET Hot Sheet
Price: $212.70 --0%

Rating Summary:
    10 Buy, 15 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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Leerink Partners analyst Ana Gupte views yesterday's trading reaction to the Aetna (NYSE: AET) and Humana (NYSE: HUM) deal announcement and purported risks post the conference call as "overblown" and said its offers a strong buying opportunity.

"First, we do not expect UNH (OP) to come in over the top for AET, and expect that it would have done so before the deal was inked, and with the break-up fee of 3.75% of deal value (which would equate to around $1.3B on the HUM side and $1.7B on the AET side), it is much less likely. Second, we expect the AET-HUM deal to close despite anti-trust scrutiny and see the Group Medicare Advantage book of AET, which comprises 45% of AET's 1.2MM MA members, as much less subject to anti-trust scrutiny. Third, we expect annual re-pricing of HUM's Medicare Advantage and Public Exchange book to offer an in-line 2016 despite the guide-down given the short-tailed claims liabilities of Managed Care while a move to Cash EPS along with AET, ANTM (OP) and CI (OP) offers as much as 30c upside. Finally, we see the synergies as conservatively estimated for medical cost synergies, and revenue synergies are completely excluded, with AET having credibly delivered a well-executed integration with CVH. AET is trading at 14.4x 2016E consensus EPS and guidance, and this hardly reflects the scale, diversification and growth of the combined entity. We see upside to 2016 EPS and multiple expansion to ~17x to reflect this strategic transaction.

The analyst reiterate their Outperform ratings on both at price targets of $230 and $160, respectively.

For an analyst ratings summary and ratings history on Aetna click here. For more ratings news on Aetna click here.

Shares of Aetna closed at $117.43 yesterday.



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