U.S. Health Insurer Humana Posts Better-Than-Expected Profit in Q3; Buy with Target Price $452

Humana, a health insurance company, reported a better-than-expected profit in the third quarter and upgraded their lower band of adjusted EPS forecast for this year to between $18.50 to $18.75, sending its shares up over 1% in the premarket.

The for-profit American health insurer reported 3Q20 earnings per diluted common share or EPS of $10.05 on a GAAP basis, $3.08 per share on an adjusted basis. That was higher than the market expectations of $2.81 per share. On the year-to-date basis, 2020 EPS were $27.37 on a GAAP basis, $21.04 on an adjusted basis.

“3Q results were encouraging. Humana beat EPS by 10%, driven by lower MLR. Mgt also modestly increased 2020 EPS guidance and nudged up Individual MA enrollment growth one point to 10.5%. Utilization was only at 95% of baseline exiting 3Q, which reduces the risk that it snaps back faster than guidance assumes,” said David Windley, equity analyst at Jefferies.

“We expect Humana to continue to reinvest COVID-19-induced upside in 4Q. To that point, the guidance assumes a loss of ~$2.40 in 4Q (a ~$5.50 swing),” Windley added.

Humana shares rose 1.13% to $413.18 in pre-market trading on Tuesday; the stock is up about 12% so far this year.

Executive Comments

“We continue to see more Medicare beneficiaries choosing Medicare Advantage (MA) plans over Medicare-Fee-For-Service due to MA’s ever-increasing value proposition. What’s driving this strong value is the fact that plans must constantly innovate to stay competitive as Medicare beneficiaries have the freedom to choose a plan that’s affordable for them and that suits their lifestyle needs. For example, about 60% of our members are in $0 premium plans and enjoy supplemental benefits not included in Medicare-Fee-For-Service, like dental, vision, hearing, access to healthy foods, and gym memberships,” said Bruce D. Broussard, Humana’s President and Chief Executive Officer.

“Also, because the MA program rewards for quality through CMS’s Five-Star Quality Rating System, it encourages health plans like Humana to be proactive and to take a holistic approach to managing the care of its members. Based on Humana’s recently announced Stars ratings, we continue to be a leader among our peers, with 4.1 million, or 92%, of our MA members currently enrolled in plans rated 4-stars or higher.”

Humana Stock Price Forecast

Sixteen equity analysts forecast the average price in 12 months at $452.06 with a high forecast of $496.00 and a low forecast of $409.00. The average price target represents a 10.64% increase from the last price of $408.58. From those 16 analysts, 11 rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $500 with a high of $642 under a bull-case scenario and $230 under the worst-case scenario. The firm currently has an “Overweight” rating on the health insurer’s stock. Humana had its target price raised by Truist to $475 from $455.

Several other analysts have also recently commented on the stock. Deutsche Bank increased their price target on shares of Humana to $431 from $397 and gave the stock a hold rating. Royal Bank of Canada increased their price target to $420 from $388 and gave the stock a sector perform rating. JP Morgan increased their price target to $452 from $394 and gave the stock an overweight rating.

We think it is good to buy at the current level with a target of $452 as 100-day Moving Average and 100-200-day MACD Oscillator signal a buying opportunity.

Analyst Comments

“Humana has both high earnings exposure (~75%) to Medicare Advantage (MA), and leading MA market share (~18%). Humana is executing on organic Medicaid growth and at only ~5% of earnings, Medicaid provides an additional growth pipeline for the copmany,” said Ricky Goldwasser, equity analyst at Morgan Stanley.

“Recent Medicaid contract wins in LA and KY underscore that management’s Medicaid strategy is playing out. A strong balance sheet and continued solid cash generation lay a foundation for expanding services offerings via potential M&A,” Goldwasser added.

Check out FX Empire’s earnings calendar