Humana (HUM) Rises 9.7% in a Year: More Room for Growth?
Humana Inc. HUM shares have climbed 9.7% in the past year against the 7.9% decline of the industry. Several contract wins and renewals, a strong Medicaid business and efficient capital deployment are driving the stock.
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Headquartered in Louisville, KY, Humana is one of the largest healthcare plan providers in the United States. The company also provides other benefits with specialty products, including dental, vision and other supplementary benefits. It has a market cap of $60.2 billion.
Can it Retain Momentum?
The answer is yes and before we get into the details, let us show you how its estimates for the full-year 2023 stand.
The Zacks Consensus Estimate for Humana’s 2023 earnings is pegged at $28.06 per share, indicating an increase of 11.2% from the 2022 level. The company beat earnings estimates in all the last four quarters, with an average of 13%.
The consensus estimate for 2023 revenuesstands at $103.6 billion, indicating an 11.5% increase from the 2022 level.
Now let’s delve into what might drive this Zacks Rank #3 (Hold) stock.
The company projects individual Medicare Advantage membership to witness a minimum membership growth of 625,000 or 13.7% year over year in 2023. This will likely help the company to increase premiums.
Its solid Medicaid business boasts multiple contract wins in different states. Also, its strategic acquisitions help the company scale its business and improve its product suite. Management also does not shy away from shedding non-core assets to improve profitability and focus on more lucrative assets. The company remains optimistic to fulfil its target of attaining adjusted earnings of $37 per share within 2025.
Humana closed the sale of a 60% stake in its Kindred at Home subsidiary’s Hospice and Personal Care segments to private investment firm Clayton, Dubilier & Rice to boost efficiency and keep costs down. HUM retained the remaining 40% stake to gain from the standalone company’s long-term success. These strategic initiatives set the company up for long-term growth.
Its balance sheet strength is praiseworthy. As of Dec 31, 2022, the company had cash, cash equivalents and investment securities of $13.9 billion, significantly higher than its long-term debt of $9 billion. Its cash balance of $5.1 billion can easily manage the short-term debt of $2.1 billion.
Rising operating cash flows help the company take shareholder value boosting measures. The metric more than doubled in 2022 to almost $4.6 billion. In February 2023, the company's board of directors approved a 12.4% increase in the quarterly dividend. As of Jan 31, 2023, it had $1 billion left under the repurchase authorization.
Risks
Despite the upside potential, there are a few factors that can play spoilsport. Rising expenses are weighing on HUM's margins. Our estimate suggests total operating costs to jump nearly 10% this year. Also, its return on equity of 20.5% is lower than the industry average of 24.6%.
Key Picks in Medical Space
Meanwhile, investors interested in the broader medical space may look at players like Avanos Medical, Inc. AVNS, Viemed Healthcare, Inc. VMD and BioLife Solutions, Inc. BLFS, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Avanos Medical’s 2023 earnings predicts 1.8% year-over-year growth. AVNS beat earnings estimates in all the past four quarters, with the average being 11%.
The consensus mark for Viemed’s 2023 earnings indicates an 87.5% year-over-year increase. Furthermore, the consensus estimate for VMD’s revenues in 2023 suggests 15% year-over-year growth.
The Zacks Consensus Estimate for BioLife Solutions’ 2023 earnings suggests 84.2% year-over-year growth. Also, the consensus mark for BLFS’ 2023 revenues suggests 19.1% year-over-year growth.
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Humana Inc. (HUM) : Free Stock Analysis Report
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