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Humana Inc

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Humana (HUM - Free Report)

The United States is moving towards healthcare for all.  All Americans will pay into a system organized and mandated by our government called The Patient Protection and Affordable Care Act (aka ObamaCare).  Whether you believe the plan is right or wrong for America, companies like Humana will reap the rewards from more income and lower care costs. 

Even though insurance providers like Humana have been trending higher, there may be more momentum left in this stock. 

Company Description & Developments
Humana offers a lineup of healthcare related services, with their main focus being group health insurance.

Their other lines of business serve the military, individuals, seniors, and many others.  Products include various specialty products to employers, including dental, group life, workers' compensation, and administrative services to those who self-insure their employee health plans.

Their services will be an integral part of ObamaCare (Medicare and Medicaid specifically), but initially, they were the loudest in opposition to the law.  Weird huh?  But the proof is in the profits…

The average operating profit margins of healthcare companies like Humana grew to 8.24 percent since the overhaul became law, compared with 6.88 percent for the year and a half before it was passed.  

On average, healthcare insurers saw earnings leap almost 30% from Q4 2008 to Q4 2011 according to a Bloomberg study.  Industry analysts are estimating that Medicare revenue may rise by as much as $10 billion by 2015 as more baby boomers retire.

In addition to the macro fundamentals, Humana has been making higher highs and higher lows since August and is trading at relatively cheap multiples here. 

Financial Profile
Humana is a large-cap company (14.9 billion) that is trading at about 11.4 times trailing earnings (P/E).  Looking forward, Zacks Consensus Estimates is estimating that number dropping to 11.1, with no change in price from these levels.  

Humana rose to a Zacks Rank 1 Strong Buy on the 19th of January from a rank of 2.  It has been bouncing between buy and strong buy since November.

Humana reported a 0.2% quarterly sales increase at their last earnings report on October 31, 2011. 

They saw year over year sales growth of 10.40% and a 26% rise in earnings per share in the same period with total sales of roughly 34 billion in FY2010.  Humana is expected to earn $8.44 in FY2011 according to the Zacks Consensus Estimate. 

Earnings Estimates
We saw several analysts revise next quarter’s earnings estimates up within the past month.  In addition, upward revisions came from several analysts to current year and next year’s estimates ahead of their report on February 6th.

Expectations are for Humana to make $1.19 this quarter.  Of the 15 analysts who cover the health insurer, the consensus is for the company to grow earnings by 17.5% in FY2011 and to see a 5% reduction to earnings in FY2012.

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago from current quarter, out to FY 2012.  This bodes well for sentiment among the analysts and makes a bullish case for Humana. 

Humana beat estimates last quarter by 25.74%, with the average earnings surprise being a positive 40% over the past year.  They have beat estimates consistently over the past 12 months.  

Market Performance & Technicals
The chart for Humana is bottom left to top right, minus the correction we had during the summer of 2011.  A recent pullback should give would-be buyers a chance to scoop up shares at a reasonable entry around the $91 level.

HUM has remained above its 50 day moving average since October 20th.  The stock recently made a new 52 week high of $96.46 just before the most recent retracement.

The stock is also firmly above its 200 day moving average of $79.57, which can be used as long term support for the stock.  It only breached that level twice in the past 15 months and didn’t stay below it for long.  

Humana has outpaced the S&P 500 by 55.75% over the past year, but lagged behind the index by 1.5% over the past month.  It also outperformed the S&P by 3% over the past 90 days. 

Humana looks to be a relatively low priced stock (on a valuation basis) with strong momentum characteristics.

Jared A Levy is the Momentum Stock Strategist for He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

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