Back to top

Analyst Blog

Last week, Humana Inc. (HUM - Analyst Report) announced the closure of its acquisition of Metropolitan Health Networks Inc. – a Florida-based medical services organization. The company will pay $11.25 per share in cash to the shareholders of Metropolitan Health. Additionally, Humana will settle the outstanding debt of the acquired company.

This translates into a purchase consideration of $850 million, excluding transaction costs. Humana funded the acquisition, which was announced in the beginning of November, mainly through the proceeds from the issue of senior notes, apart from using its available cash balance.

Earlier this month, Humana completed a public offering of 3.15% senior notes worth $600 million, maturing in December 2022, and 4.625% senior notes worth $400 million, due December 2042, for this purpose. The issuance has increased the financial leverage as well as the interest burden of the company.

Nevertheless, the acquisition is expected to moderately improve Humana’s earnings from the next year, thereby toning down the negative effect. It is also projected to marginally increase Humana’s medical membership, as Metropolitan Health has a membership base of about 87,500.

Moreover, Metropolitan Health’s 35 state-of-the-art primary care medical centers will be added to Humana’s primary care network. The company’s members will also gain access to Metropolitan Health’s network of affiliated physicians. Metropolitan Health offers medical care to Medicare Advantage, Medicaid and other beneficiaries in Florida. Its business model is focused on primary care.

The impact of the deal on the financial results will be clearer once the company reveals its earnings guidance for 2013 along with its fourth quarter financial results on Feb 4, 2013. The Zacks Consensus Estimate for Humana’s 2013 earnings is currently $7.92 per share, up 5.25% over 2012. The Zacks Consensus Estimate for earnings per share in 2012 stands at $7.53, while that for the fourth quarter stands at $1.08.

Currently, the shares of Humana carry a Zacks #3 Rank (Hold). We maintain a long-term ‘Neutral’ recommendation on the stock. The company’s peer, Cigna Corp. (CI - Analyst Report) carries a Zacks #2 Rank (short-term Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SUPER MICRO… SMCI 26.74 +9.19%
CENTURY ALU… CENX 27.14 +8.65%
BANCO DO BR… BDORY 16.74 +7.79%
CANADIAN SO… CSIQ 38.01 +7.25%
WILLDAN GRO… WLDN 11.37 +5.77%