On Jul 11, 2013, the shares of Humana Inc. (HUM - Analyst Report) reached a new 52-week high of $86.50. The momentum was driven by the company’s fundamental strength, including higher earnings and Medicare coverage, strong financials, sturdy ratings and an efficient inorganic growth strategy.
Humana has maintained a strong cash and short-term investment position over the past several years. The strong cash position enabled the company to increase its quarterly dividend by 3.85% in Apr 2013, after a 4% dividend hike in Apr 2012.
Moreover, Humana’s individual Medicare stand-alone prescription drugs plan membership has been increasing over the past few years, driven by strategic alliances and competitive pricing. It grew 17.5% in 2012 and 8.9% in the first quarter of 2013. For 2013, the company expects it to increase by 170,000–190,000.
This membership increase should boost Humana’s revenues from the Medicare business, which contributed 72% of the total premiums and service revenues in 2012. The company’s strong earnings and membership growth in the first quarter prompted management to increase the earnings guidance for 2013 to $8.40–$8.60 per share from $7.60–$7.80.
Humana expects its second-quarter earnings in the range of $2.40–$2.50 per share. The Zacks Consensus Estimate for Humana’s second-quarter 2013 earnings stands at $2.46, which is within the company’s guidance range. This translates into a year-over-year increase of 5.03%.
Moreover, the valuation of Humana looks attractive. The shares are trading at a discount to its peers both on a price-to-book and on a forward price-to-earnings basis, while the return on equity of 15.9% is higher than the peer group average of 12.5%. The year-to-date return from the stock is 25.6%, above S&P’s return of 17.4%.
Humana currently carries a Zacks Rank #3 (Hold). Other health maintenance organizations worth considering are Molina Healthcare Inc. (MOH - Analyst Report) – Zacks Rank #1 (Strong Buy), Aetna Inc. (AET - Analyst Report) – Zacks Rank #2 (Buy) and WellPoint Inc. (WLP - Analyst Report) – Zacks Rank #2 (Buy).