On Jul 18, 2013, we raised
) to Outperform based on the company's strong financial position,
membership growth in Medicare, stable ratings, and rapid
expansion through acquisitions.
Why the Upgrade?
Humana has a strong history of outperforming earnings
estimates. The company reported 4 straight quarters of positive
earnings surprise with an average beat of 21.21%.
Humana has also maintained a strong cash and short-term
investment position over the past several years. The strong cash
position enabled the company to increase its quarterly dividend
by 3.85% and replace its old share repurchase authorization with
a new repurchase authorization worth $1 billion in Apr 2013.
Further, Humana's Medicare business, which contributed 74% to
the premium and service revenues in the first quarter of 2013,
has been witnessing rising membership. The company has developed
various commercial products to expand its business platform over
the last several years.
Moreover, with the acquisitions of Arcadian, SeniorBridge,
Concentra and MD Care, Humana has increased its focus on its core
business as a health care provider, expanded its Medicare
coverage, enhanced the quality of its healthcare services,
expanded its provider network in various regions and reduced its
exposure to health care overhaul regulations.
These positives offset Humana's dependence on Medicare
Advantage plans, rising expenses, the adverse impact of
healthcare reforms and high competition.
We expect Humana to continue to outperform estimates in the
second quarter of 2013. This is because Expected Surprise
Prediction or ESP (Read:
Zacks Earnings ESP: A Better Method
) is +1.63% and the stock carries Zacks Rank #1 (Strong Buy).
Stocks with a positive ESP and a Zacks Rank #1, #2 or #3 have a
significantly higher chance of beating earnings.
The Zacks Consensus Estimate for Humana's second quarter 2013
earnings per share stands at $2.46, up 5.3% over the year-ago
quarter. The company is expected to release its second-quarter
financial results before the opening bell on Jul 31, 2013.
Other Stocks to Consider
Other health maintenance organizations worth considering are
Heath Net Inc.
) - Zacks Rank #1 (Strong Buy),
Molina Healthcare Inc.
) - Zacks Rank #1 (Strong Buy) and
) - Zacks Rank #2 (Buy).
AETNA INC-NEW (AET): Free Stock Analysis
HEALTH NET INC (HNT): Free Stock Analysis
HUMANA INC NEW (HUM): Free Stock Analysis
MOLINA HLTHCR (MOH): Free Stock Analysis
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