A Major Win For Humana, With One Caveat

Mar.29.12 | About: Humana Inc. (HUM)

Humana (NYSE:HUM) wins antitrust approval from the US Department of Justice to buy California-based Arcadian Management Services with one major condition. Humana must agree to sell Arcadian's Medicare Advantage business in various parts of five states.

The USDOJ said that HUM must sell Arcadian's Medicare Advantage business in Arizona, Arkansas, Louisiana, Oklahoma, and Texas. Investors should keep in mind that Humana must sell only portions of Arcadia's in these states, which totals 51 counties and 71,000 total plan subscribers.

"These divestitures preserve competition so that Medicare beneficiaries, primarily senior citizens in Arizona, Arkansas, Louisiana, Oklahoma and Texas, benefit from lower prices, better quality services and more innovative products," said Acting Assistant Attorney General Sharis Pozen, who heads the Justice Department's Antitrust Division.

Investors should note that HUM is a relatively cheap long term play with consistent growth and a descent dividend. Currently trading with a P/E of 10.3 and a yield of 1.2%, HUM has had two pretty impressive quarters beating analyst estimates by 30% or more each time. The Arcadian acquisition should bode well for HUM's revenue in coming quarters and FY 2012 earnings.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.