Updated Research Report on Humana
On Mar 26, 2014, we issued an updated research report on Humana Inc. (HUM). Earlier, Humana posted dismal fourth-quarter 2013 results, when the company incurred a loss that compared unfavorably with the year-ago earnings and the Zacks Consensus Estimate. Poor performance across all the segments except the Healthcare services division led to the downside.
However, with respect to earnings trend, this Zacks Rank #3 (Hold) healthcare plan provider delivered positive surprises in three out of the last four quarters, with an average beat of 12.75%. Despite the weak fourth-quarter earnings, we believe membership growth, business expansion strategies and capital deployment initiatives should enable Humana to generate long-term growth.
Humana has been adept in increasing its membership base in its Medicare business. Additions in the 2014 enrollment season further boosted the membership base of the company. Moreover, the raised guidance on the 2014 Medicare stand-alone PDP figures further draws our optimism regarding the prospects of Humana.
The business expansion initiatives undertaken by the company in the recent times are poised to bolster company operations going forward. The acquisition of American Eldercare, alliance with CareSource, some Long-Term Support Service (:LTSS) regions in Florida, the Accountable Care agreements with St. Luke’s University Health Network and Regional HealthPlus, Health4 and partnership with CoverMyMeds are worth mentioning. These deals raise optimism as they should enhance the membership base of the company further.
The company also has impressive capital deployment strategies, be it share repurchases or dividend payouts, that increases investor confidence in the stock. Humana also scores strongly with the credit rating agencies.
However, higher-than-expected expenses owing to increases in operating, depreciation and amortization costs are a setback. Further, some provisions under Obamacare are still pending with respect to the ban on annual and lifetime coverage caps, annual fees on health insurance companies and excise tax on high premium insurance policies. On implementation, these programs will likely increase expenses further.
Humana also faces intense pricing pressure from competitors, particularly from BlueCross BlueShield. Competitors constantly look to grab market share by offering lower prices and new innovative services. Additionally, the overhang of litigations, apart from tarnishing the company’s goodwill, might lead to considerable settlement charges, thereby weighing on margins.
Other Stocks to Consider
Aetna Inc. (AET), Chemed Corp. (CHE) and China Cord Blood Corp. (CO) are some better-ranked stocks in the healthcare services space. While Chemed sports a Zacks Rank #1 (Strong Buy), Aetna and China Cord carry a Zacks Rank #2 (Buy).
Read the Full Research Report on HUM
Read the Full Research Report on AET
Read the Full Research Report on CO
Read the Full Research Report on CHE
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