Humana Reiterated Neutral - Analyst Blog
07 March 2013 - 1:40AM
Zacks
We have retained our Neutral
recommendation on Humana Inc. (HUM) 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).
Why Reiterate?
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 Employer Group.
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. (AEMD), Cigna
Corp. (CI) and Coventry Healthcare Inc.
(CVH) 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 Report
HUMANA INC NEW (HUM): Free Stock Analysis Report
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