It’s safe to say Humana (NYSE:HUM) has not been one of the year’s star performers. In contrast to the generally positive market sentiment, shares of the health insurance giant have trended in the opposite direction, showing year-to-date losses of 15%.
Yet, there are several reasons to believe that a turnaround could be in the cards. At least that is the opinion of Piper Sandler analyst Jessica Tassan.
“We think the HUM brand has an enduring competitive moat, supported by consistently high Star ratings; and we believe the company’s purpose-built healthcare delivery and services infrastructure should improve outcomes and bend the cost curve through center-based, at-home and pharmacy care over time,” Tassan opined.
Tassan is particularly optimistic about the impact of new CEO Jim Rechtin, believing “his leadership could accelerate the company’s turnaround.”
Ahead of the Q2 earnings report on July 31, Tassan anticipates that Humana might raise its CY24 adjusted EPS guidance. The analyst suggests that lower-than-expected inpatient unit costs could offset challenges related to the CY24 medical loss ratio (MLR) guidance. Tassan estimates that every 10 basis points of improvement in the CY24 non-capitated Medicare MLR could add $0.42 to the consolidated CY24 adjusted EPS. If inpatient unit costs fall below projections, this could lead to a 20-30 basis point improvement in the MLR, potentially increasing EPS by an additional $0.83 to $1.25, thus exceeding Humana’s CY24 adjusted EPS guidance of ~$16.00.
On account of “deliberate geographic, price and benefit design actions taken to preserve margins in the face of insufficient benchmark rates,” Tassan expects HUM to lose some MA (Medicare Advantage) market share in CY25 as memberships contract by “a few hundred thousand.” But in CY26, Tassan expects HUM to regain MA market share and “accelerate its return to target margins.”
“At that point,” notes the analyst, “the company will likely have exited commercial, expanded into 10+ Medicaid states, reoriented its provider network to contend with the V28 risk adjustment model, exited unprofitable MA plans, and repositioned benefits to sustainable levels.”
All told, Tassan rates HUM stock as Overweight (i.e., Buy) although her $392 price target implies shares will stay rangebound for the time being. (To watch Tassan’s track record, click here)
Elsewhere on the Street, HUM shares receive an additional 7 Buys and Holds, each, for a Moderate Buy consensus rating. That said, the $374.54 average target implies shares are overvalued by more than 3%. (See Humana stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
