Don't Expect Failed Humana Deal To Quash Aetna's Desire For M&A

Analysts at Citi initiates coverage of Aetna Inc AET with a Buy rating, $180 price target and named to the firm's "Citi Focus List."

Aetna should be viewed as a "strong diversified health insurer" that is also well positioned to gain share within the government segment and has "stable entrenched position" in its commercial unit, Citi's Ralph Giacobbe stated in a report. This will help the company achieve a sustainable high-single-digit operating earnings growth over the years with a supportive capital deployment program to add a "boost" to earnings per share.

After Aetna's failed attempt at acquiring Humana Inc HUM, the company is expected to focus on organically growing its Medicare Advantage build-out with a more aggressive geographic reach, the analyst continued. In addition, the company still has room to grow within the under penetrated Medicaid market and these two sectors alone could provide a "sizeable new business pipeline" for the coming years.

In fact, expansion through large M&A deals is now "off the table" and the company is committed to a 2018 goal in which 60 percent of MA beneficiaries have access to an Aetna plan versus just 49 percent in 2016, the analyst argued However, after the company succeeds in delivering organic growth it will likely focus on M&A deals for further growth and if it doesn't find any potential acquisition it can return excess capital to shareholders through share repurchases or a dividend.

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