Trump's Election Could Clear The Way For The Aetna-Humana Merger

President-elect Donald Trump's victory spells higher chances for the regulatory approval of the merger between Aetna Inc AET and Humana Inc HUM, Argus’ David Toung said in a report. He maintains a Buy rating on Aetna, while raising the price target from $130 to $145.

Results And Guidance

Aetna announced strong Q3 results, particularly in its commercial and government-sponsored businesses. The company’s performance was adversely impacted by an uptrend in MLR [medical loss ratio] from its ACA-compliant [Affordable Care Act – complaint] on-exchange plans.

Aetna narrowed its operating EPS guidance range for 2016 from $7.90–$8.10 to $7.95–$8.05, albeit leaving the midpoint unchanged at $8.00.

Toung lowered the operating EPS estimates for 2016 and 2017 from $8.15 to $8.05 and from $9.05 to $9.00, respectively, citing “the updated guidance, the company’s 3Q performance, and the upward pressure on the MLR from ACA-compliant on-exchange plans.” Trump's victory is expected to have a widespread impact on the segment.

Merger Chances Higher

“We believe that the change in administration could have an impact on the antitrust review of the merger. In particular, a Republican-led DOJ and FTC could view the merger more favorably and might be more willing to approve the transaction based on the concessions and geographic divestitures offered by the two companies,” Toung wrote.

The analyst added, however, that the merger closing could get delayed into 2017, while retaining “a positive view of the growth opportunities” from the Humana acquisition.