Most people hate stock sell-offs, but value investors can learn to like them. I believe Humana (NYSE:HUM) stock at or under $400 is a great deal, even if the red numbers on your screen feel scary at the moment. I am bullish on HUM stock and don’t expect the currently negative sentiment toward it to last very long.
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Humana is a giant company that provides healthcare plans in the U.S. Furthermore, Humana is a major provider of Medicare Advantage plans, which are based on the U.S. government’s Medicare program and are mainly for people age 65 or older.
Being a Medicare Advantage plan provider has, without a doubt, been quite lucrative for the company. However, today, there’s unfavorable news on this topic, and it’s sending HUM stock lower. Yet, if you’re patient and calm, and you like to buy large-cap stocks at reduced prices, then now’s the time to conduct your due diligence on Humana.
Is Humana Stock a Top Pick, or Not?
What’s fascinating about the world of Wall Street analysts is that one can like a company while another one can dislike it at the same exact time. A textbook example concerns Humana stock, which one analyst firm considers a top pick, while another firm just dropped Humana from one of its top-picks lists.
I’ll start with the good news. Reportedly, Argus Research recently reiterated its Buy rating and its $550 price target on HUM stock. Not only that, but the firm also named the stock as one of its 2024 Top Picks.
The Argus analysts, according to TheFly, believe that the “demographics of an aging population will be a tailwind for Humana’s growth as this trend expands the addressable market for Medicare Advantage.” I tend to concur with this assessment, and although Humana issued a cautionary note about Medicare Advantage costs (which we’ll discuss in a moment), I still expect the company to generate strong revenue from this healthcare insurance program in the coming years.
Meanwhile, analysts with Bank of America (NYSE:BAC) removed Humana stock from the firm’s “US 1 list.” This list, as TheFly describes it, is meant to “represent a collection of” some of the “best investment ideas… covered by BofA Global Research” analysts.
Certainly, it’s disappointing that the Bank of America analysts dropped HUM stock from their “US 1 list.” On the other hand, they kept their Buy rating on the stock, so it doesn’t seem that these analysts have a major problem with Humana.
Humana Stock: The Crash Before the Earnings Report
Humana stock is down by 11.3% today, and you might suspect that this must have been due to an unfavorable earnings report. However, Humana doesn’t plan to release its full fourth-quarter 2023 financial results until January 25.
Yet, Humana did just publish a warning that the company’s fourth-quarter results will be adversely impacted by higher medical costs. Moreover, Humana observed higher Medicare Advantage medical costs due to higher inpatient utilization in November and December, as well as an uptick in outpatient surgeries and supplemental benefits during 2023’s fourth quarter.
This is the cost of doing business for Humana, and it should be expected, as Medicare Advantage medical costs will sometimes be unusually high. In this case, higher costs in Q4 will negatively affect Humana’s full-year financial results.
In November, Humana forecast that the company’s full-year 2023 adjusted earnings would be $28.25 per share or higher. Wall Street’s analysts expected $28.29 per share, and now Humana is calling for approximately $26.09 per share.
In addition, Humana warned investors that the company is “currently assessing the expected impact of emerging utilization trends on its 2024 outlook, which is anticipated to be material if current trends continue.” Certainly, that’s not what stock traders wanted to hear from Humana.
An ~11% share-price drop is pricing in a lot of future financial damage, though. It feels like the market is assuming that Medicare Advantage patients will continue to intensely use inpatient, outpatient, and supplemental services like they did in Q4 of 2023. Also, it seems like investors have already dumped HUM stock due to fear of a terrible fourth-quarter report. A relief rally, I believe, might ensue if Humana’s actual results aren’t as bad as anticipated.
Is Humana Stock a Buy, According to Analysts?
On TipRanks, HUM comes in as a Strong Buy based on 13 Buys and three Hold ratings assigned by analysts in the past three months. The average Humana stock price target is $580.25, implying 46.9% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell HUM stock, the most profitable analyst covering the stock (on a one-year timeframe) is Steven Valiquette of Barclays (NYSE:BCS), with an average return of 12.38% per rating and a 63% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Humana Stock?
When the market assumes the worst, even if it’s due to a company’s cautionary note, this could provide a setup for a share-price rally. Currently, some investors are behaving as if Humana’s financials will crumble in the next few quarters.
In other words, there’s a decent opportunity here for fearless dip buyers. Humana’s issues with elevated Medicare Advantage costs are being priced in right now, so I’m definitely considering HUM stock for a long-term position.
