Market Insider

JPMorgan analysts downgrade Humana after reports that DOJ may block acquistion

Health care rollercoaster

With increasing expectations that the U.S. Department of Justice may block the pending acquisition of health insurer Humana by Aetna, JPMorgan downgraded Friday shares of Humana to "neutral" from "overweight."

"We have long held that only HUM shares have material downside if the DOJ were to block the pending acquisition by Atena," JP Morgan's Gary Taylor said in a report Friday.

The probability of a deal approval has declined well below 50/50 chance, Taylor said. If the deal were not to happen, Humana's shares could fall to a range of as low as $115 to $125, the analyst said.

The rival companies were scheduled to meet Assistant Attorney General William Baer Friday to discuss "significant concerns" with the deal, reported trade publication MLex, citing unnamed sources.

The regulators' concerns are focused on whether the deal will limit consumer choices for Medicare Advantages health plans for the elderly, according to reports.

If regulators challenge the acquisition, Aetna will need to decide if it wants to litigate the Justice Department's decision. Even if it does, and the deal still falls through, Aetna will owe a $1 billion pretax termination fee to Humana.

But for Wedbush Securities analyst Sarah James, she is confident that the Aetna deal will go through.

"We're 80 to 90 percent confident that the Aetna deal is going to go through," she told told CNBC's "Power Lunch" Friday.

She added, the results of the DOJ meeting could result in an update regarding the next steps for the companies to take and what a divestiture profile might look like.

"We expect stocks to move on that," she said.

Humana's stock has fallen about 11 percent this year, and were recently trading at $158.15, down 2.82 percent, or $4.59. Taylor also slashed his price target for Humana shares to $150 from $196.