Humana Inc. (HUM Quick QuoteHUM - Free Report) is well-poised to grow on the back of strategic acquisitions, product expansions and a strong Medicaid business. Also, rising demand for health care plans is a huge positive.

Humana — with a market cap of $56.7 billion — is a payment solutions provider based in Louisville, KY. HUM provides health insurance benefits under Health Maintenance Organization (HMO), Private Fee-For-Service (PFFS) and Preferred Provider Organization (PPO) plans. HUM also provides other benefits with specialty products, including dental, vision and other supplementary benefits.

Courtesy of solid prospects, this presently Zacks Rank #3 (Hold) stock is worth retaining at the moment.

The Zacks Consensus Estimate for Humana’s 2022 earnings is pegged at $24.65 per share, indicating a 19.4% rise from the year-ago reported figure. The stock has witnessed nine upward estimate revisions in the past 60 days against none in the opposite direction. HUM beat on earnings in each of the last four quarters, the average being 5.9%.

The consensus mark for 2022 revenues is $93.1 billion, indicating a 12.1% rise from the prior-year reported number.

Key Drivers

Humana is expected to grow from contract wins. Its Medicaid business line won contracts in Ohio, which significantly enhanced its geographical footprint. In February 2022, Humana won a contract from the Louisiana Department of Health to help serve the Medicaid members in the state. HUM now has existence in seven states, including Oklahoma, South Carolina and Wisconsin. Revenues from Medicaid and other businesses increased 31.8% year over year in the first quarter of 2022. We expect the number to further grow in the coming days.

HUM has a strong inorganic growth strategy in place. Buyouts like iCare, Family Physicians Group, Your Home Advantage, Curo and the remaining share in Kindred at Home are praiseworthy. These acquisitions help Humana boost its footprint, expand the product portfolio and grow its membership base.

Humana’s valuation looks attractive at the moment. Its price-to-earnings forward 12-month ratio stands at 16.43X, lower than its industry average of 17.32X. Hence, it has an upside potential left.

HUM’s move to transition its subsidiaries Humana Pharmacy and Humana Specialty Pharmacy into the CenterWell healthcare services brand can support membership growth. By adopting the CenterWell brand, CenterWell Pharmacy customers and members will continue to benefit from a seamless and secured delivery, and personalized assistance. With this move, it can delve deeper into the age-old clinical settings and deliver enhanced primary care, pharmacy and home health services at affordable costs.

Humana’s financial flexibility is impressive. As of Mar 31, 2022, HUM had cash, cash equivalents and investment securities of $18 billion, higher than its long-term debt of $11.3 billion. Its cash balance of $4.9 billion can easily manage the short-term debt of $1.7 billion. Based on a strong financial position, Humana has been efficiently deploying excess capital for the past several years.

Key Concerns

There are a few factors that are impeding the stock’s growth, lately.

Increasing expenses due to higher benefits and operating costs are eating into its profits. Operating expenses jumped 16.6% year over year in the first quarter of 2022. This can dent HUM's profit levels. Also, the group Medicare Advantage membership is expected to be flat this year wherein competitive pricing might play a crucial role. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.

Better-Ranked Players

Some better-ranked stocks in the medical space are Select Medical Holdings Corporation (SEM Quick QuoteSEM - Free Report) , Altimmune, Inc. (ALT Quick QuoteALT - Free Report) and UnitedHealth Group Incorporated (UNH Quick QuoteUNH - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Select Medical’s earnings is currently pegged at $2.19 per share. SEM has witnessed one upward estimate revision in the past 60 days against none in the opposite direction.

Select Medical’s earnings beat estimates in each of the last four quarters, the average being 42%.

The Zacks Consensus Estimate for Altimmune’s 2022 bottom line indicates an 8.2% improvement from the 2021 levels. ALT has witnessed four upward estimate revisions in the past 60 days against none in the opposite direction.

Altimmune’s earnings beat estimates in three of the last four quarters and missed the mark once on the remaining occasion.

The Zacks Consensus Estimate for UnitedHealth’s 2022 bottom line indicates 14.4% growth from the year-ago period’s level. UNH has witnessed one upward estimate revision in the past 60 days against none in the opposite direction.

UnitedHealth’s earnings beat estimates in each of the last four quarters, the average being 3.7%.