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Humana (HUM) Taps Debt Market With Senior Note Pricing

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Humana Inc. (HUM - Free Report) announced the pricing of its public offering of senior secured notes worth $750 million. The notes carry an interest rate of 3.700% and are scheduled to mature in 2029. The offering is subject to certain closing conditions.

The sale of the notes is projected to be consummated on Mar 23, 2022.

Inside the Headlines

The health insurer expects to generate proceeds of $741.1 million from this transaction after subtracting underwriters’ discounts and estimated offering expenses. The health insurance giant has plans to use the funds for general corporate purposes, such as repayment of current debt, including borrowings under its commercial paper program.

HUM is also attempting to reduce its interest burden, thus facilitating margin expansion.

Humana enjoys a steady financial position. HUM ended the year with cash, cash equivalents and investment securities of $16.586 billion, higher than its long-term debt of $10.541 billion. Its cash balance of $3.39 billion can easily manage the short-term debt of $1.9 billion. HUM’s long-term debt to capital is more or less on par with the industry average, indicating that it is managing its operations with the same amount of debt as its industry peers.

HUM’s operational strength should enable it to service debt uninterruptedly, maintaining the stock’s creditworthiness. Cash flow from operations is expected within $3-$3.5 billion in 2022, implying growth from $2.3 billion reported in 2021.

Based on a strong financial position, Humana has been efficiently deploying excess capital for the past several years.

Last month, HUM’s board of directors approved a hike of 12.5% in its quarterly dividend to return more value to its shareholders. With the announcement, the payout now stands at 78.75 cents per share compared with the prior payout of 70 cents. This marks the sixth consecutive year of dividend increase. The meatier dividend will be paid out on Apr 29, 2022, to Humana’s shareholders of record as of Mar 31.

In January, Humana entered into an agreement with Mizuho Markets Americas LLC and Wells Fargo Bank, National Association to buy back shares worth $1 billion as part of its $3-billion share repurchase program. This buyback plan was announced by HUM's board of directors in February 2021 with the expiration date of Feb 18, 2024.

Zacks Rank and Price Performance

With a market capitalization of $55.37 billion, shares of this currently Zacks Rank #3 (Hold) player have gained 8.1% in a year’ time, underperforming its  industry’s growth of 33.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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However, its acquisitions and dispositions, efficient capital deployment and strong Medicaid business will help it bounce back going forward.
Stocks to Consider

Some better-ranked stocks in the medical space are Mednax, Inc (MD - Free Report) , The Ensign Group, Inc. (ENSG - Free Report) and McKesson Corporation (MCK - Free Report) . While Mednax sports a Zacks Rank #1 (Strong Buy), Ensign Group and McKesson carry a Zacks Rank #2 (Buy) at present.

Mednax’s earnings surpassed estimates in each of the last four quarters, the average being 27.99%. The Zacks Consensus Estimate for MD’s 2022 earnings suggests an improvement of 12.9%, while the same for revenues suggests growth of 4.2% from the respective year-ago reported figures. The consensus mark for MD’s current-year earnings has moved 7% north in the past 30 days.

The bottom line of Ensign Group outpaced estimates in each of the last four quarters, the average being 1.72%. The Zacks Consensus Estimate for ENSG’s 2022 earnings suggests an improvement of 11.8%, while the same for revenues suggests growth of 12.1% from the respective year-ago reported figures. The consensus mark for 2022 earnings has moved 3.6% north in the past 60 days. ENSG has a VGM Score of A.

CA-based McKesson Corporation is a health care services and information technology company. MCK has a VGM Score of A and a trailing four-quarter earnings surprise of 20.64%, on average. The Zacks Consensus Estimate for MCK’s 2022 earnings indicates a rise of 38.9% from the year-ago reported figure. The consensus mark has moved 5.7% north in the past 60 days for current-year earnings.

Shares of Mednax and Ensign Group have lost 13%, and 1.1%, respectively, in a year, while the stock of McKesson has gained 59.2%.
 

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