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Humana (HUM) Expands JV, To Invest $1.2B, Eyes 100 New Clinics

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Humana Inc. (HUM - Free Report) recently announced that it is creating a second joint venture (JV) with the private-equity firm Welsh, Carson, Anderson & Stowe to expand its footprint in senior-focused, value-based primary care facilities. The JV will focus on Medicare patients and invest up to $1.2 billion.

Within the 2023-2025 forecast period, the JV is expected to develop around 100 new value-based primary care facilities. Humana’s CenterWell Senior Primary Care brand will operate the new clinics and earn a management fee while HUM will own a minority stake in the JV. It will have the option of buying its partner’s stake in the JV in the future.

Through the first JV, HUM and its partner are investing $800 million in developing 67 facilities by early 2023. The second JV will enable the partners to scale up their operations and boost footprint in the high-demand primary care space. At the first-quarter-end, Humana’s Primary Care Organization operated 214 primary care senior-focused clinics, incorporating 37 facilities of the first JV. These facilities serve around 180,000 Medicare patients.

Humana intends to serve Medicare patients in around 250 clinics by 2022 end and add 30-50 facilities annually through the next three years. The new JV formation comes at a time when competition is surging in the market. Smaller players and start-ups are securing more and more Medicare Advantage members, inducing lower membership growth opportunities for large companies like Humana, Cigna Corporation (CI - Free Report) , et al.

Earlier this year, HUM trimmed its Medicare membership growth forecast by around 50%. The health insurer anticipates adding 150,000-200,000 net members under the Medicare Advantage plans in 2022, down from the previous estimate of 325,000-375,000.

Humana is focusing on JVs, de novo expansions and inorganic growth to strengthen its already large platform. The new JV will enable HUM to extend its primary care clinics to more markets while sharing associated risks. Cigna is also focusing on staying above the competition. Thanks to multiple strategic initiatives, CI anticipates total medical customer growth of at least 7,25,000 for 2022, up from the prior view of “at least 5,75,000.”

Price Performance

Humana’s shares have increased 4.5% in the past three months compared with the 5% rise of the industry it belongs to.

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Zacks Rank & Key Picks

Humana currently has a Zacks Rank #3 (Hold). Some better-ranked players in the Medical - HMOs space are Select Medical Holdings Corporation (SEM - Free Report) and UnitedHealth Group Incorporated (UNH - Free Report) , both presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Increasing revenues and a string of acquisitions made over the years will likely drive Select Medical’s long-term growth. The rising incidence of diseases is surging the number of patient admissions for SEM. It beat on earnings in each of the last four quarters, the average being 42%.

UnitedHealth’s health service business, branded as Optum, is becoming increasingly valuable. It is also crucial to its diversification strategy. Several acquisitions made in this segment, use of advanced technology, market-leading health analytics, modern care delivery and data-driven population health approaches lend Optum a long runway for growth. UNH beat on earnings in each of the last four quarters, the average being 3.7%.