Market Overview

Walmart's Reported Talks With Humana 'Fairly Unsurprising,' Says BMO

Walmart's Reported Talks With Humana 'Fairly Unsurprising,' Says BMO
Related HUM
Mid-Afternoon Market Update: Dow Surges Over 500 Points; Etsy Shares Gain On Upbeat Earnings
Mid-Day Market Update: Crude Oil Down 1.3%; SendGrid Shares Spike Higher
The Acquirer's Portfolio - A Year In Review (Seeking Alpha)
Related WMT
Moderate Inflation, Positive Retail Earnings Offer Lift In Back-And-Forth Market
Cowen: Kohl's, Target, Tiffany Are Top Holiday Retail Picks
Unchanged Strategy To Boost Costco's Share Price (Seeking Alpha)

Walmart Inc (NYSE: WMT) is reportedly in talks with Humana Inc (NYSE: HUM) to explore a deepening of their relationship, including a potential outright acquisition. The talks between the two companies may have caught some investors by surprise, but this shouldn't have been the case, according to BMO Capital Markets. 

The Analyst

BMO Capital Markets' Matt Borsch maintains an Outperform rating on Humana's stock with an unchanged $320 price target.

The Thesis

Talks between Walmart and Humana are "fairly unsurprising" and could be seen as a reaction to CVS Health Corp (NYSE: CVS)'s proposed acquisition of Aetna Inc (NYSE: AET) and CIGNA Corporation (NYSE: CI)'s proposed acquisition of Express Scripts Holding Co (NASDAQ: ESRX), Borsch said in a Monday note.

Given the two prior deals that were proposed, Walmart faces potential antitrust challenges given the "scope of possible consolidation" in the industry, the analyst said. 

A merger of the two companies boasts similar strategic rationales to the CVS-Aetna deal, the analyst said. Walmart could be looking to leverage a national retail footprint to deliver lower-cost care delivery sites across many markets, he said. 

In the meantime, Walmart's 10-year relationship with Humana has been successful with their co-branded and co-managed Medicare drug plan offering, Borsch said.

"With a shared focus on the growing senior population, that partnership could possibly be a whole lot more." 

It should be noted that although a potential Walmart-Humana tie-up looks like the CVS-Aetna deal, it is still a new and unproven model which seems "a bit cart before horse," Borsch said. The first step of the deal would be to merge the two companies, followed by creating pilot projects to "figure out" if the merger made sense in the first place, the analyst said. 

Elsewhere On The Street

Stifel's Mark Astrachan said in a research report a deal would be modestly accretive to Walmart's earnings and additive to store traffic.

Morgan Stanley's Simeon Gutman said in a research report that a tie-up between two companies could be "mutually beneficial."

Price Action

Shares of Walmart were trading lower by 4.38 percent at the time of publication Monday afternoon, while Humana's stock was higher by 4.14 percent. 

Related Links:

New Quarter Begins: Here Are A Few Trends For Investors To Monitor

Amazon Moving Retail Wars To An Unexpected Battleground: Physical Stores

Latest Ratings for HUM

Nov 2018Morgan StanleyMaintainsOverweightOverweight
Nov 2018JefferiesMaintainsBuyBuy
Nov 2018RBC CapitalMaintainsSector PerformSector Perform

View More Analyst Ratings for HUM
View the Latest Analyst Ratings

Posted-In: Matt Borsch retailAnalyst Color Health Care Price Target Reiteration Analyst Ratings General Best of Benzinga


Related Articles (AET + CI)

View Comments and Join the Discussion!

Latest Ratings

AMTDMorgan StanleyUpgrades65.0
APOMorgan StanleyDowngrades34.0
CGMorgan StanleyDowngrades23.0
EIXEdward JonesDowngrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Vetr Crowd Downgrades Chipotle To Sell

The Week Ahead: Switch's Lockup Expires, Spotify Debuts, And More