Fitch Ratings agency affirmed the ratings assigned to
) debt instruments and its various insurance subsidiaries. The
senior notes were assigned a "BBB" rating while various Humana
insurance company subsidiaries were given 'A' Insurer Financial
Strength (IFS) ratings
Fitch raised the ratings on the senior notes to "BBB" from "BBB-"
and the IFS to "A" from "A-" in Sep 2012. The favorable operating
results, strong financial position and improvement in Humana's
shareholders' equity influenced Fitch to upgrade the ratings in
At present, the ratings agency is impressed with Humana's
financial strength, huge Medicare Advantage (MA) market share,
and strong liquidity and interest coverage. Thus Fitch affirmed
the previously upgraded ratings on the company. The ratings
affirmation also came on the back of the financial leverage and
capitalization metrics that were in line with Fitch's guidelines
for Humana's present ratings.
Fitch pointed out that the Affordable Care Act's (ACA) imposition
of 85% minimum benefit ratio and a non-deductible yearly fee on
health insurers that will come in effect from Jan 2014 might
pressurize margins in Humana's MA product. However, despite such
adversities, the ratings agency remained optimistic about the
growth prospects of Humana. They expect the company to
consistently deliver solid earnings on the back of a large and
efficient operating platform.
The ratings agency believes that the acquisitions undertaken by
Humana will help the company to combat margin pressure. Moreover,
the MA plan that caters to the aged population is expected to
boost Humana's earnings owing to the burgeoning aging U.S.
population (with about 14% of the population being above 65 years
of age as of 2012, up 100 basis points year over year).
Rating affirmations or upgrades from credit rating agencies
play an important part in retaining investor confidence in the
stock as well as maintaining creditworthiness in the market. We
believe that Human's present score with the credit rating agency
will help it write more business going forward.
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Humana currently carries a Zacks Rank #3 (Hold). Among other
health services companies,
Molina Healthcare Inc.
) carry a Zacks Rank #2 (Buy) and are worth considering.