We have retained our Neutral recommendation on
) as dependence on Medicare Advantage plans, rising expenses,
adverse impact of healthcare reform and high competition will
likely weigh on positives. The health service provider currently
carries a Zacks Rank #3 (Hold).
Increase in operating cost along with depreciation and
amortization costs have increased Humana's expenses over the past
few years which in the long-term might affect the financials
adversely. Humana depends on Medicare Advantage plans and is thus
adversely affected by the healthcare reforms which reduce the
sales of Medicare Advantage products.
Increased capital expenditure over the years and substantial
increase in long-term debt in 2012 has hampered the cash flow of
the company thereby raising question regarding the company's
future ability to engage in deleveraging activities. The company
is also facing intense pricing pressure from competitors,
particularly from BlueCross BlueShield
Nevertheless, counting on the positives, Humana's premium and
service revenues, and investment income showed improvement. The
company's Medicare business in collaboration with the Wal-Mart
Stores allows Humana's Medicare beneficiaries to save
substantially more on an average on premiums, prescription
medication co-payments and cost-shares from the previous drug
plans. Moreover, strategic acquisitions and alliances coupled
with new product launches have enhanced membership. Such moves
provide the company with greater leverage to expand the network
of Preferred Provider Organization (PPO) and Health Maintenance
Organization (HMO) providers.
Further, Humana continues to increase shareholders value. In
2012, Humana deployed about $460 million through share buybacks.
Humana's fourth-quarter operating earnings per share (EPS) of
$1.19 breezed past the Zacks Consensus Estimate by 11.2%.
However, results lagged the year-ago EPS by 1 cent. The
year-over-year decline in earnings was attributable to lower
pre-tax income in the company's Retail, and Health and Well-Being
Services segments, which were nearly offset by lower loss in
Following the earnings release the Zacks Consensus Estimate for
2013 has gone down 2.1% to $7.75 per share. However, the Zacks
Consensus Estimate for 2014 has increased 0.1% to $8.55 per share
as 2 of 12 estimates were raised.
Other Stocks to Consider
Among others from the industry,
Aethlon Medical Inc.
Coventry Healthcare Inc.
) carry a favorable Zacks Rank #2 (Buy).
AETHLON MEDICAL (AEMD): Get Free Report
CIGNA CORP (CI): Free Stock Analysis Report
COVENTRY HLTHCR (CVH): Free Stock Analysis
HUMANA INC NEW (HUM): Free Stock Analysis
To read this article on Zacks.com click here.