Following in the footsteps of Aetna Inc (NYSE:AET) and Humana Inc (NYSE:HUM), health benefits company, Anthem Inc (NYSE:ANTM) just announced that they will be purchasing fellow health services company CIGNA Corporation (NYSE:CI) for $54 billion. CIGNA spokesman, Matt Asensio noted that, “This [deal] will actually improve efficiencies and reduce costs for consumers down the line.” The merger will of course have to go through regulatory approvals and other requirements before it can be approved later this year. While this deal could take many months to finalize, now could be your chance to get in on a great value Buy.
If approved, the new insurance powerhouse would have about $115 billion in revenue and cover more than 53 million people with medical insurance. Anthem Chief Executive Joseph Swedish noted, “We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve.”
Last month, analyst Brian Wright of Stern Agee reiterated his Neutral rating on Anthem but factored the potential acquisition of Cigna into his price target. Wright issued a $185 price target and argued, “Following ANTM’s investor call yesterday detailing its proposed acquisition of CIGNA (CI, $162.60, Neutral), we recognize the significant accretion potential of the transaction will likely outweigh questions about the strategic elements of every book of business at CI. Finally, we see room for both parties to negotiate to an acceptable compromise, though we wouldn’t be surprised if the process didn’t take a couple more months to address outstanding issues. This likely impacted the estimated closing time frame of a transaction by the end of 2016. Reiterates 2015 guidance even halting share buybacks in the event of a transaction. ANTM reiterated its 2015 adjusted EPS outlook of at least $9.90 implying operating upside despite a potentially higher share count. Our $10.29 EPS estimate for 2015 assumes $2 billion in buybacks in 2H15.”
In addition to Wright, many other analysts see a substantial upside to the stock. While the overall analyst consensus on the stock is a Hold, the average analyst price target is $175.38, indicating a 13% upside. The highest analyst price target at the moment is $188, reflecting a potential 21.13% upside.
Leerink Partners analyst Ana Gupte reiterated an Outperform rating on Anthem following the investor meeting last month, and issued a $185 price target. Gupte is confident in the company’s dominance in the market and argued, “We came away with conviction on our ANTM solid organic growth story where the company is winning on the strength of provider contracts and market share. Providers are cited to show preference for ANTM on ACOs, given the company’s substantial market share advantage. Exchanges are a profitable driver of growth while attrition in Small Group continues to stem. Contract negotiations with ESRX (OP) have not made enough progress for any report-out, while the M&A aspirations are stated to be targeted to the States of TX & FL, though with capacity for a transformative deal.”
Anthem will report earnings next week on July 29 and analysts are expecting earnings per share of $2.68 for the quarter. The company posted $3.14 EPS in their last quarterly earnings report. The company currently has a 52-week high of 173.59 and a 52-week low of 106.52. Anthem opened today at 152.19.