Back to top

Here's Why Humana (HUM) Stock Looks Attractive Right Now

Read MoreHide Full Article

Humana Inc. (HUM - Free Report) stock looks promising at the moment considering the mid-term election, which should enable averting  modifications to Obamacare and aid the Medicaid expansion and Medicare growth.

Though Humana has low percentage of revenues drawn from Medicaid business, it is growing further and should also gain from certain developments contributing to the stock’s growth. The company’s Medicare business commands a strong position in the market, which should ride on increased demand from the retiring American population.

We are optimistic about the company’s prospects and believe that the time is right for investors to add the stock to their portfolio as it looks to possess great potential and is poised to carry the momentum ahead.

The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 1.9% upward over the past 30 days.

Humana boasts a stellar earnings surprise history, having missed estimates only once in the last 14 reported quarters (that too by just a cent or 0.01%). The company’s earnings surprise record has instilled enough confidence in investors. Though past performance doesn’t guarantee future results, it certainly lends a broader perspective to the company’s operational efficiency.  Moreover, with no serious headwinds posing a threat to the company, we believe that its favorable earnings trend will continue into the coming quarters. The company’s stock price should therefore consistently rally since an earnings beat is one of the main factors to push up the stock price.

Shares of Humana have outperformed the industry  in a year’s time, having rallied 27% compared with the  industry’s growth of 22%.

Factors That Make the Stock Attractive

Gain From Medicaid Expansion: The company should benefit from the recent mid-term election, which saw the Democratic party gaining control of the House of Representatives. This means that chances of the repeal of Obamacare as sought by the Republican party over the past couple of years have slimmed. It also implies that changes to health insurance exchanges (HIX) and Medicaid expansion will be off the table. Other companies that should gain from this change are Molina Healthcare Inc. (MOH - Free Report) , Centene Corp. (CNC - Free Report) , WellCare Health Plans, Inc. (WCG - Free Report) , et al.

Demographic Change to Boost Medicare Business: Humana has a significant presence in the Medicare Advantage market, a profitable business for private insurers. The company witnessed average 5.5% growth of total Retail Medicare membership in the last four years. Also, the same increased 8.5% year over year for the first nine months of 2018. This business is definitely slated for strong growth taking into account hordes of baby boomers, who touch the retirement age on a daily basis and even prefer the Medicare Advantage plans. Also favorable  medicare reimbursement rates for 2019 makes this business attractive.

Acquisitions: More than a dozen buyouts made over the past decade provided the company with a robust inorganic growth story to operate in the competitive healthcare environment This year, the company completed the transactions of Kindred Healthcare and Family Physicians Group, which point to its concerted efforts in acquiring providers of care. While Kindred Healthcare provides Humana an entry in the home healthcare industry, which is poised for rapid growth, Family Physicians as one of the largest providers to Medicare and Medicaid beneficiaries in Central Florida will enable the company to woo patients insured by Medicare and private Advantage plans in the state.

Earnings Guidance Lifted: Better-than-expected third-quarter 2018 results prompted Humana to raise its EPS outlook for 2018. It now expects the same to be around $14.40, up from the prior prediction of $14.15. GAAP EPS is projected at around $11.92, above the past forecast of $11.52. This bullish guidance buoys investor’s optimism on the stock and also fuel the stock price surge.

Top Rank & VGM Score: Humana currently has a Zacks Rank #2 (Buy) and an impressive VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>


More from Zacks Analyst Blog

You May Like