Cigna stock experienced its largest percentage increase since 2009, following a report by the Wall Street Journal that the health services company had called off a potential merger with Humana.
According to the Journal, Cigna backed away from the merger due to an inability to reach an agreement on financial terms. The two companies had been in talks about the merger since November.
Humana declined to comment on the matter, while Cigna has yet to respond.
Initially, investors were displeased with the idea of buying Humana, causing Cigna shares to fall 8.1% when the Journal first reported on the potential merger.
The subsequent movements of both health insurers confirm investor sentiment. Cigna shares spiked by 15% to reach $296.82, making it the top performer in the S&P 500. Meanwhile, Humana stock dropped 1.6% to $473.94.
Analyst Ben Hendrix from RBC Capital Markets anticipated the rise in Cigna stock after the Journal report. According to Hendrix, investor feedback suggested widespread dissatisfaction with the deal due to concerns about dilution potential for Cigna shareholders and the likelihood of regulatory and legal challenges.
Hendrix rates Cigna as a Sector Perform with a $327 price target. He also rates Humana as an Outperform with a target price of $599.
Analyst David Windley from Jefferies shares this optimism. Windley upgraded shares of Cigna from Hold to Buy and raised his price target from $335 to $341 on Sunday.
The abandonment of the potential merger with Humana is seen as a short-term victory for Cigna investors, according to Windley. He states, “…this upgrade is simple. Before reports of CI shopping its MA book, shares stood at ~$310. Since then, the stock is down (16.5%) with no fundamental change.”