Back to top

Image: Bigstock

Why is It Worth Holding Humana (HUM) in Your Portfolio?

Read MoreHide Full Article

Humana Inc. (HUM - Free Report) is well-poised for growth on the back of its solid Medicare business and strategic initiatives.

The stock carries an impressive 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.  

It flaunts a commendable earnings surprise history, having exceeded the Zacks Consensus Estimate in the trailing four quarters, the average being 7.8%. This stellar surprise record reflects  the company’s operating excellence as well.

It recently delivered operating earnings per share of $6.05, beating the Zacks Consensus Estimate by 15.5% and also soaring 52.8% year over year owing to Medicare Advantage membership growth and higher revenues.

Humana now anticipates adjusted EPS at around $17.60, up from the earlier expectation of $17.25- $17.5, indicating 21% growth from the year-ago reported quarter. Individual Medicare Advantage membership is now predicted in the 480,000-500,000 range, above the previous projection of 415,000-440,000. The company now projects retail segment revenues between $64.2 billion and $64.8 billion, up from the earlier range of $55.1-$55.7 billion.

Humana’s Medicare business has been delivering encouraging results over the last several quarters on the back of sturdy operating measures. Strength in Medicare Advantage performance led to a better 2018 Retail segment benefit ratio, evident from higher Medicare membership, which shot up by 54% from 2013 to 2018. Given its constant efforts, we expect it to gain from its solid Medicare business.

Moreover, its strategic moves have carved a growth path for the company. Significant purchases, such Family Physicians Group, Your Home Advantage, Curo and a share in Kindred at Home helped the company deepen its reach in the home health and hospice market. We believe, these endeavors augur well for long-term growth.

Humana has been efficiently deploying excess capital for the past several years. It has been hiking its dividend since 2011. In February 2019, the company raised dividend by 10% to 55 cents per share. In July, the company’s board of directors approved a new $3-billion share repurchase plan, replacing its previous buyback authorization. We believe that its financial power will continue to instill investor confidence in the stock.

However, escalating expenses over the past many quarters remain a major concern for the company. Humana expects to witness an elevation in benefit expenses, which will induce overall higher operating expenses, which might further hurt its bottom line.

Shares of this Zacks Rank #3 (Hold) company have lost 10.4% in a year’s time, wider than its industry’s decline of 7.8%.



Stocks to Consider

Investors interested in the medical sector can take a look at some better-ranked stocks like Centene Corporation (CNC - Free Report) , Anthem, Inc. and Universal Health Services, Inc. (UHS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Centene works as a diversified and multi-national healthcare enterprise in the United States. In the trailing four quarters, the company came up with average beat of 4.6%.

Anthem works as a health benefits company in the United States. In the last four quarters, the company delivered average beat of 4.57%.

Universal Health operates acute care hospitals, outpatient facilities and behavioral health care facilities. In the previous four quarters, the company’s average beat was 4.46%.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>
 


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Universal Health Services, Inc. (UHS) - free report >>

Humana Inc. (HUM) - free report >>

Centene Corporation (CNC) - free report >>

Published in