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Humana (HUM) Hits 52 Week High: Will the Rally Continue?

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Shares of Humana Inc. (HUM - Free Report) hit a 52-week high of $332.72 in Friday’s trading session before closing a tad lower at $331.44, primarily driven by the company’s strategic repositioning of its portfolio as well as its solid performance in the second quarter.

The stock has surged nearly 30% in the past year, underperforming its industry’s growth of 34.9%.


Humana retained its investors' favorable sentiment surrounding the stock with an earnings beat in the second quarter wherein it maintained its solid surprise trend, surpassing estimates from the last four quarters with an average beat of 3.96%.

During the second quarter, earnings of $3.96 per share trumped the Zacks Consensus Estimate by 23.3% and also grew 13.4% year over year. The company’s revenues of $14.2 billion rose 7.2% year over year, topping the Zacks Consensus Estimate of $14.1 billion. Results reflected strong strategies, Medicare Advantage enrollment growth, lower inpatient medical utilization in Retail segment and significant operating cost efficiencies.

The company has also completed the joint acquisition of Curo Health Services (Curo) with Welsh, Carson, Anderson & Stowe wherein it will own a 40% minority interest. It was a strategic move by Humana for expanding its medical care services portfolio. It would also boost its Medicare Advantage business, which has been showing significant improvement over the past few years. Of late, it has also jointly acquired Kindred Healthcare, Inc. (KND) with a 40% ownership and an ability to expand its demographic coverage. We believe that the company's initiatives to expand its presence in the growing home health and hospice care business have helped it reach a 52-week high.

Earlier this month, the company also completed is pending sale of its wholly-owned closed unit, KMG, to the subsidiary of Texas-based insurance company, HC2 Holdings, Inc. . We think that the transaction of this unit, which caters to around 29,300 policyholders, would help Humana focus on its core businesses as well as cut down its costs.

Is Further Upside Left?

Following second-quarter results, the company has raised its 2018 guidance. It now expects the adjusted earnings per share to be nearly $14.15, up from its previous projection of $13.70-$14.10. This upbeat outlook lends a positive insight into its performance, which should support the stock price rise.

We believe that this Zacks Rank #3 (Hold) company has great growth potential, also apparent from its long-term earnings growth rate of 14.1% and a favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. Moreover, the company has witnessed its Zacks Consensus Estimate for 2018 and 2019 earnings move 1.3% and 1.5% north, respectively, over the past 30 days. All these factors are expected to add substantial value to the stock going forward.

Stocks to Consider

Investors looking for some better-ranked stocks might consider WellCare Health Plans, Inc. , Anthem, Inc. and UnitedHealth Group Incorporated (UNH - Free Report) for their portfolio enhancement. Each stock carries a Zacks Rank #2 (Buy).

WellCare Health Plans, Inc. provides managed care services for government-sponsored health care programs. The company came up with a positive surprise in all the last four quarters with an average beat of 53.89%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Operating as a health benefits company in the United States, Anthem, Inc. pulled of an encouraging earnings surprise of 6.65% over the preceding four quarters.

UnitedHealth operates as a diversified health care company in the United States. The stock delivered a positive surprise of 3.71%.

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