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Humana (HUM) Hits 52-Week High on Solid Q2, Raised Outlook

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On Aug 29, Humana Inc. (HUM - Free Report) hits a 52-week high of $255.91. The improvement is believed to have been driven by strong second-quarter results, guidance raise and the recent completion of accelerated share buyback.

Notably, the stock has surged 43% in the last year, almost in line with the industry’s rally of 42% but significantly outperforming the S&P 500 index’s rise of 12.2%.

In fact, investors are optimistic on this Zacks Rank #3 (Hold) company’s strong second-quarter earnings that topped Zacks Consensus Estimate by 13.3%. This uptick was owing to solid performance by both the Medicare Advantage business segment and Retail segment.

The company’s raised guidance (for the second time this year) is also encouraging. Humana now expects 2017 adjusted earnings per share of $11.50, to be up from the previous guidance of at least $11.10 per share. The latest guidance also reflects 20% increase in earnings compared with 2016. Operating cash flow increased by approximately $200 million, primarily owing to a better financial performance.

Interestingly, an upbeat guidance instills confidence in the company’s ability to perform well in a highly regulated and competitive industry.

Consequently, the company announced a strong outlook for its Medicare business, one of its most significant growth drivers. It expects approximately 74% of its Medicare members to be in 4-Star or higher plans, for the year 2018, which compares favorably to its previous forecast of 37%.

Going forward, Humana’s anticipates to book 2017 pre-tax earnings of approximately $85 million in its Indiividual Commercial segment compared with the previous expectation of a full-year loss of approximately $45 million. The reversal in this segment is expected to be driven by lower-than-anticipated medics cost for the exchange enrollees.  

Investors also viewed favorably the timely completion of $1.5 billion of accelerated share buyback plan announced in the first quarter.

In fact, another leading health insurer UnitedHealth Group Inc. (UNH - Free Report) also touched a 52-week high on the same day, followed by the announcement that The Advisory Board Company’s (ABCO - Free Report) health care business will join Optum, which is the company’s health services unit.

A better-ranked stock in the same space include Aetna Inc. (AET - Free Report) holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aetna is one of the largest health benefits companies that topped estimates in each of the last four quarters with an average positive surprise of 19%.

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