Humana's Medicare Business Impresses, Public Exchange Hurts
Humana, Inc.’s HUM strong Medicare business positions it for long-term growth. Medicare membership has witnessed a five-year CAGR (2011-2016) of 6.6%. The same trend continued in the first nine months of 2017 as well.
The company has been witnessing a consistent growth in revenues since 2002. In fact, the company’s revenues have increased at a CAGR of 16% over the last 11 years. The Affordable Care Act (ACA) or Obamacare contributed significantly to the company’s top line. However, the Trump administration is making every effort to repeal and replace the ACA. Despite the unpredictable nature of regulations and its impact on the industry, Humana continues to be an attractive pick for investors.
The company maintains a consistent record of earnings outperformance. In each of the last four quarters, Humana’s bottom line surpassed expectations with an average beat of 6.6%. Following strong third-quarter 2017 results, the company raised its earnings and revenue guidance for 2017. This upbeat guidance boosts shareholders' confidence in the stock.
The company aims to create shareholders’ wealth through capital deployment strategies like share repurchases and dividend payments.
Year to date, its shares have gained 18% compared with a 36% increase registered by the Zacks Health Maintenance Organization (HMO) industry. However, its solid third-quarter results, raised guidance and strong fundamentals are likely to benefit the stock going forward.
However, Humana has been incurring mounting loss in its Individual Commercial business that has been weighing on the company’s bottom line and top line. It has been witnessing significant decline in enrollment in this business. Along with other health insurers like Anthem Inc ANTM, Aetna Inc AET and UnitedHealth Group, Inc UNH, Humana is planning to scale back its participation on this loss-making business in 2018. Although curtailment of this business is likely to save the company from losses, it will lead to a fall in revenues.
The company also suffers from rising expenses that has been severely hurting its bottom line.
Zacks Rank
Humana presently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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