Morning Market Thoughts

Good morning. Flat open, but a few things to note before you start your day.

On the news front, Aetna (AET) and Humana (HUM) broke up on Valentine’s Day. No roses were on the table, only IOUs. Last month a Federal judge ruled that the AET/HUM merger would create antitrust issues. After that ruling, you just knew it was a matter of time before the two love birds parted ways. Aetna will pay Humana $1 billion (think of it as alimony in one lump sum) for backing out of the marriage. Of course, Humana then announced that a third of that ($370 million) will be paid to Uncle Sam in the form of taxes. (It’s nice to be the uncle.)

The antitrust issue revolves around the consequence of the merger negatively impacting competition in health care coverage programs. To wit, prices would rise because competition is reduced. The two companies would now be playing for the same side.

Just a week earlier, another Federal judge blew up the Anthem (ANTM)/Cigna (CI) for the same antitrust reasons.

So there will be marriages after Valentine’s Day, and the four companies will likely be hitting Match.com (MTCH) or Tinder (not a good idea) to find new relationships.

Humana (HUM) is so broken hearted that it has just taken itself off the dating market and won’t be attending any Obamacare exchange events. No parties; no speed dating; no “it’s just lunch”…nothing. They’re out! I suspect they’re just the first of the big insurers to go solo — All insurers will have to file 2018 plans in April if they plan to stay in the marketplace. So, this issue should fade away for a month or two, but it’ll likely be back on the front page by mid April.

As for the stocks:

Aetna ($AET) advanced 3% yesterday on this news and Humana ($HUM) did nothing. Anthem ($ANTM) continues its advance and has some pretty strong upside momentum. They’re growing…but the numbers aren’t particularly impressive. Cigna ($CI) is still working higher after a long and wide cup pattern…but I just don’t think it’s compelling.

Frankly, of all of the players in this matter, Match Group (MTCH) looks the best. (This is ironic since I only included Match.com in the piece because I thought it would be funny to inject a dating theme due to Valentine’s Day) But $MTCH is consolidating in a high base with $17 as support. Quarterly earnings/sales growth is about 22% year over year (a quarter versus the same quarter last year). And with a P/E of 22, the stock is relatively cheap. Worth keeping an eye on.

OK. That’s all I got this morning. See you in the forum!!

–Dan

 

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