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Humana's stock prices could thwart Aetna deal

But booming Medicare business makes it a tempting target

Amid speculation this week that Aetna may make an offer to acquire either Humana or Cigna, industry analysts say there are two factors that could make or break a deal with Humana.   

First off, any acquisition would likely hinge on the value of Humana's stock, which is currently trading at elevated levels because of losses this year associated with its commercial business, according to The Street. Humana noted in its first quarter earnings report that it experienced an unexpected increase in hospital admissions in March and April, placing its gross margins at risk, Sterne analyst Brian Wright told The Street.

Given the first quarter data, Humana's claims payments most likely will remain elevated in May--Wright downgraded the insurer's shares on the stock from $165 to $150.

Humana shares dropped 0.6 percent to $172.40 Wednesday, while Aetna rose 0.2 percent to $110.30.

However, as Wright noted, "We cannot rule out the potential for Humana to be acquired," reported Barron's. "We do not assign any value to Humana's individual commercial business that does not make money. We are lowering our 2015 earnings per share (EPS) outlook to $8.07 from $8.40 and our 2016 EPS outlook to $9.17 from $9.71."

For now, "a takeover is just wishful thinking at current share levels," Wright added, noted The Street. 

Despite fluctuations in its stock price, Humana's legacy makes it an attractive acquisition target.

Humana might still be a tempting target because of its booming Medicare business. Aetna focuses on employer-sponsored health plans, which have less unit growth potential than Medicare and Medicaid plans.

For more:
- here's The Street piece
- check out Barron's article

Related Articles:
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Booming Medicare business could make Humana an acquisition target
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