Aetna/Humana Merger Blocked by DOJ, Plus Earnings From Chipotle and AT&T

Crude futures and all three index futures are in the green this morning as traders look forward to the upcoming earnings and economic data releases. Among the stocks in the spotlight today are Chipotle Mexican Grill, Inc. (NYSE:CMG), AT&T Inc. (NYSE:T), CIGNA Corporation (NYSE:CI),  Humana Inc (NYSE:HUM), and Aetna Inc (NYSE:AET). Let’s take a closer look at each stock and see what the world’s top hedge funds think of them.

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Chipotle Misses the Mark

Chipotle Mexican Grill, Inc. (NYSE:CMG) shares are slightly in the red in pre-market trading after the restaurant chain reported weaker than expected second quarter earnings. For the period, the chain earned $0.87 per share on revenue of $998.4 million, missing the consensus estimates by $0.06 per share and $51.6 million respectively. Revenue fell by 16.8% year-over-year as comparable-restaurant sales retreated by 23.6%. Restaurant level operating margin plummeted to 15.5% from 28%. Although the data indicates that consumers have not forgotten about the food safety issues that Chipotle suffered last year, the company’s newly-enacted loyalty program is showing some good results by generating valuable consumer preference data and increasing comparable sales. Management is considering extending the loyalty program past the summer months. Of the 766 active funds that we track, 39 funds owned $1.22 billion in Chipotle Mexican Grill, Inc. (NYSE:CMG) shares at the end of March, which accounted for 8.60% of the float.

AT&T Earnings In-Line

AT&T Inc. (NYSE:T) earned $0.72 per share on revenue of $40.5 billion for the second quarter, meeting the consensus estimate for the bottom-line but missing the top-line estimate by $130 million. Cash flow from operations rose by 12.5% year-over-year to $10.3 billion while free cash flow inched up by 8.4% to $4.8 billion. The company added 2.1 million wireless customers during the quarter, led by strong demand in connected devices, Mexico, and Cricket. Management believes the company’s full year guidance is on track to meet or exceed expectations. 51 funds had a bullish position in AT&T Inc. (NYSE:T) at the end of the first quarter, up by three funds from the end of 2015.

On the next page we’ll examine the headline news involving Cigna, Humana, and Aetna.

The Department of Justice Makes it Official

CIGNA Corporation (NYSE:CI), Humana Inc (NYSE:HUM), and Aetna Inc (NYSE:AET) are all trending today after the DOJ officially sued to block the proposed Anthem/Cigna and Aetna/Humana mergers. The Justice Department does not believe that either of the mergers are in the best interest of consumers, as they would hurt competition. Attorney General Loretta Lynch said, “If the big five were to become the big three, not only would the bank accounts of the American people suffer, but the American people themselves.”

Of the four companies, Aetna and Humana may be the most likely to fight the DOJ’s decision, as they have announced plans via a press release to “vigorously defend” the merger. Aetna and Humana believe that the transaction will increase medicare options for many regions, lower costs, and lead to new products, tools and services that many consumers want and need.

Separately, Humana shares surged yesterday after the insurance company upped its full year GAAP EPS guidance to $8.56 from $8.32. Humana also expects adjusted EPS coming in at $9.25 now, versus the previous guidance of $8.85. Larry Robbins‘ Glenview Capital was a big shareholder of Aetna Inc (NYSE:AET), Humana Inc (NYSE:HUM), and CIGNA Corporation (NYSE:CI) at the end of March, as the three stocks ranked among the fund’s seven most valuable positions.

Disclosure: None