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Approval chance falls for Aetna/Humana deal, J.P. Morgan says

J.P. Morgan analyst Gary Taylor downgraded to "neutral" from"overweight" following reports that the U.S. Department of Justicemay move to block thehealth insurer's pending merger with Aetna Inc.

Taylor said the probability of the deal getting approved hasdeclined despite Aetna's effort to sell assets, which could pressure Humana'sshares. If the deal pushes through, Humana's shares would receive a boost. Ifthe Justice Department blocks the deal, Aetna may choose to litigate, but theanalyst pointed out that companies rarely win in those cases.

Taylor said there were speculations that both and could still offer forHumana if the deal between Anthem and Cigna is also blocked. However,he said investors would be skeptical of a new deal if both deals have beenblocked. He noted that Anthem and Cigna both have "materially less"Medicare Advantage overlap with Humana than Aetna.

He cut his price target for Humana to $150 from $196. HisEPS estimates are $8.85 for 2016, $12.03 for 2017 and $10.57 for 2018.