Are two leading health insurance providers about to merge? That question has been on investors’ minds today as speculation mounts that Cigna (NYSE:CI) and Humana (NYSE:HUM) are on the verge of an important deal. According to recent reports, these two top players in the insurance industry are considering a cash and stock deal that could be finalized before the start of 2024. While this isn’t a done deal yet, investors should pay close attention. If the merger moves forward successfully, it would certainly impact health insurance stocks, creating a new industry powerhouse.
That said, neither CI nor HUM stock is reacting well to these reports. That isn’t necessarily a reason to doubt the deal’s importance, but it does warrant a closer look.
What This Means for Health Insurance Stocks
The two companies involved in this deal are two of the biggest names among health insurance stocks. As market conditions have worsened during this quarter, both stocks have struggled. Today’s news hasn’t helped. As of this writing, HUM stock is down 4% for the day, and CI is down more than 8%. Neither stock is showing any signs of an imminent rebound.
If the deal progresses, conditions will likely worsen for other health insurance stocks. Cigna and Humana rivals such as CVS Health (NYSE:CVS) and UnitedHealth Group (NYSE:UNH) will have to contend with a new sector leader with tremendous market share and resources. Per The Wall Street Journal:
“Joining forces would give the pair scale to rival that of UnitedHealth Group and CVS Health and vault the combined company into the top tier of integrated healthcare firms. Cigna, which had revenue of about $181 billion last year, would be able to marry its huge pharmacy-benefit unit, which manages drug plans, and its strength in commercial insurance with Humana’s big position in the fast-growing Medicare segment, something Cigna has long sought.”
The WSJ also notes that this isn’t the first time these two companies have explored a merger. They discussed joining forces in 2015, but it fell through when Humana shifted focus to making an ill-fated deal with managed healthcare company Aetna. Some investors may view the past as an indication that this new merger won’t happen. But if the two companies are revisiting the idea, the situation is worth monitoring.
What Comes Next
Neither company has issued an official statement on the merger so far. Until further details become available, though, it will be hard to speculate as to its likelihood and timeline. However, if the deal closes before the year ends, it will likely create a powerful new company and push other health insurance stocks down.
Even before the deal speculation began, Humana presented investors with a tempting undervalued growth play. As InvestorPlace contributor Chris Markoch notes, it is the type of defensive stock that could help any portfolio during volatile market conditions. He also adds that Wall Street analysts expect to see HUM stock rebound in 2024, but bullish sentiment will likely increase now that it appears to be on the verge of a merger. Both health insurance stocks are likely to move upward as further progress on the deal is revealed.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.