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Why is it Worth Keeping Humana (HUM) in Your Portfolio Now?

Zacks Equity Research

Humana Inc. HUM is well-poised for growth on the back of robust Medicare business and strategic initiatives. The company has an impressive Growth Score of B and this style score analyzes its growth prospects.

The company flaunts a commendable earnings surprise history, having exceeded the Zacks Consensus Estimate in the trailing 12 quarters, reflecting operating excellence. It expects 2019 adjusted EPS in the range of $17-$17.50, translating into year-over-year growth of 18.6%. Consolidated revenues are anticipated between $63.1 billion and $63.7 billion, up 11% year over year. This strong guidance instills investor confidence in the company.

Its return on tangible equity — a profitability measure — stands at 31.5% against its industry's negative 107.24%.

Over the past 30 days, the company’s earnings estimate for 2020 have been revised 0.1% upward. This in turn, reflects analysts' optimism on the stock.

Humana’s Medicare business has been performing strongly over the last several quarters on the back of solid operating initiatives. Strength in Medicare Advantage performance resulted in a better 2018 Retail segment benefit ratio, evident from higher Medicare membership by 54% from 2013 to 2018. The company expects 2019 individual Medicare Advantage to grow 12-13%

The company has also been making concerted efforts in executing strategic buyouts to fuel its business growth.

Humana is prudently deploying excess capital for the past several years that remains impressive for investors. While It has been hiking its dividend since 2011, during last November, the company inked a deal to effect a $750-million ASR program under its current share repurchase authorization. We believe that its financial strength will continue to boost investor confidence in the stock. Cash flow from operations for 2019 is projected between $2.5 billion and $2.9 billion.

However, Humana has been persistently witnessing a rise in operating expenses since 2010. The company expects to further witness an elevation in benefit expenses, which will induce overall higher operating expenses. Rising expenses are also likely to hurt the bottom line. Shares of this Zacks Rank #3 (Hold) company have gained 3.2% in a year's time, underperforming its industry’s rise of 11.1%.

The company is well-placed for growth, evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

The long-term earnings growth rate is expected at 13.9%, above the industry’s average of 12.8%, which is an upside for the company.

Stocks to Consider

Investors interested in the medical sector can take a look at some better-ranked stocks like UnitedHealth Group Incorporated UNH, Centene Corporation CNC and WellCare Health Plans, Inc. WCG, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UnitedHealth operates as a diversified health care company in the United States. In the last four quarters, the company delivered average beat of 3.39%.

Centene operates as a diversified and multi-national healthcare enterprise in the United States. It came up with average earnings surprise of 4.99% in the trailing four quarters.

WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 15.43% in the preceding four quarters.


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