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Will You Hold Humana (HUM) Amid Aetna Merger Uncertainty?
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On Dec 19, 2016, Zacks Investment Research downgraded Humana Inc. (HUM - Free Report) to a Zacks Rank #3 (Hold).
Why this Downgrade?
The Zacks Consensus Estimate for both the current quarter and the current year has been revised downward over last 30 days. Estimates for the current quarter decreased from $2.17 per share to $2.16, while the same for the current year dropped from $9.51 to $9.50.
The downward revision of estimates indicates the bearish sentiment of analysts owing to the unfavorable share price movement of the Humana stock since the beginning of this year. Shares of Humana have gained only 12.3% as against 23.31% gained by the Zacks categorized Health Maintenance Organization (HMO) industry.
The stock price depreciation is likely to have stemmed from headwinds like increased competition, weakness in individual commercial business, higher expenses, and softness in its group Medicare Advantage business.
Another risk is the uncertain future of the merger between Humana and Aetna Inc. (AET) that has been sued by Justice Department of the U.S. The Humana-Aetna merger has been sued on the ground that it might adversely impact the competitive environment of the HMO market in the U.S. Following the litigation, the companies declared their intention to sell certain assets to another HMO, Molina Healthcare Inc. (MOH). However, the Justice Department is skeptical about this move, as it believes that both Humana and Aetna are trying to shove their underperforming business to Molina, which lacks the manpower and the capability to take on the weak Medicare Advantage assets. Hence, the deal that had the potential to enhance the value of Humana is now shrouded under uncertainty, in turn, leading investors to lose confidence on the stock.
Rising operating expenses remains a major area of concern for Humana. Increased benefits have also led to deteriorating benefit ratios across most operating segments. Humana needs to initiate proper cost management to avoid the negative impact on its financial position and pressure on its cash flow. Higher expenses may affect its financials in the long run due to capital erosion.
Coming to its non-performing businesses, the Public Exchange business has been a drag. For 2016, Humana expects to incur loss of nearly $300 million on policies sold on public exchanges. Weak performance of its Individual Commercial Business and the Group Medicare Advantage business has also been challenging its underwriting results over last few quarters.
Stocks to Consider
Some better-ranked stocks from the HMO industry that warrant a look include WellCare Health Plans Inc. , Magellan Health Inc. and UnitedHealth Group Inc. (UNH - Free Report)
Magellan delivered positive surprises in three of the last four quarters with an average beat of 42.58%. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
WellCare delivered positive surprises in all of the last four quarters with an average beat of 40.01%. The company also has a Zacks Rank #2 (Buy).
UnitedHealth delivered positive surprise in three of the last four quarters with an average beat of 3.86%. It carries a Zacks Rank #2
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>
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Will You Hold Humana (HUM) Amid Aetna Merger Uncertainty?
On Dec 19, 2016, Zacks Investment Research downgraded Humana Inc. (HUM - Free Report) to a Zacks Rank #3 (Hold).
Why this Downgrade?
The Zacks Consensus Estimate for both the current quarter and the current year has been revised downward over last 30 days. Estimates for the current quarter decreased from $2.17 per share to $2.16, while the same for the current year dropped from $9.51 to $9.50.
The downward revision of estimates indicates the bearish sentiment of analysts owing to the unfavorable share price movement of the Humana stock since the beginning of this year. Shares of Humana have gained only 12.3% as against 23.31% gained by the Zacks categorized Health Maintenance Organization (HMO) industry.
The stock price depreciation is likely to have stemmed from headwinds like increased competition, weakness in individual commercial business, higher expenses, and softness in its group Medicare Advantage business.
Another risk is the uncertain future of the merger between Humana and Aetna Inc. (AET) that has been sued by Justice Department of the U.S. The Humana-Aetna merger has been sued on the ground that it might adversely impact the competitive environment of the HMO market in the U.S. Following the litigation, the companies declared their intention to sell certain assets to another HMO, Molina Healthcare Inc. (MOH). However, the Justice Department is skeptical about this move, as it believes that both Humana and Aetna are trying to shove their underperforming business to Molina, which lacks the manpower and the capability to take on the weak Medicare Advantage assets. Hence, the deal that had the potential to enhance the value of Humana is now shrouded under uncertainty, in turn, leading investors to lose confidence on the stock.
Rising operating expenses remains a major area of concern for Humana. Increased benefits have also led to deteriorating benefit ratios across most operating segments. Humana needs to initiate proper cost management to avoid the negative impact on its financial position and pressure on its cash flow. Higher expenses may affect its financials in the long run due to capital erosion.
Coming to its non-performing businesses, the Public Exchange business has been a drag. For 2016, Humana expects to incur loss of nearly $300 million on policies sold on public exchanges. Weak performance of its Individual Commercial Business and the Group Medicare Advantage business has also been challenging its underwriting results over last few quarters.
Stocks to Consider
Some better-ranked stocks from the HMO industry that warrant a look include WellCare Health Plans Inc. , Magellan Health Inc. and UnitedHealth Group Inc. (UNH - Free Report)
Magellan delivered positive surprises in three of the last four quarters with an average beat of 42.58%. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
WellCare delivered positive surprises in all of the last four quarters with an average beat of 40.01%. The company also has a Zacks Rank #2 (Buy).
UnitedHealth delivered positive surprise in three of the last four quarters with an average beat of 3.86%. It carries a Zacks Rank #2
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>