Humana’s Strong Q1 Performance and Cost Efficiency Bolster Buy Rating Despite 2025 Uncertainties

Analyst Whit Mayo of Leerink Partners maintained a Buy rating on Humana (HUM – Research Report), retaining the price target of $400.00.

Whit Mayo has given his Buy rating due to a combination of factors involving Humana’s performance and future prospects. The company displayed a robust first quarter in 2024, marked by lower non-medical operating expenses and stronger than expected growth during the Open Enrollment Period (OEP). Additionally, Humana experienced a modest upside in their medical loss ratio (MLR), which is a positive indicator of cost efficiency. Despite uncertainties regarding Humana’s growth plans for 2025, Mayo perceives that there are still plausible scenarios where Humana could achieve previously set targets, even though the company has officially withdrawn its specific 2025 earnings per share (EPS) growth targets due to a recently finalized rate headwind.

Mayo also notes that while visibility into Humana’s 2025 outcomes is limited, and achieving over 3% Medicare Advantage (MA) margins will be challenging and likely require multiple years, there is a pathway toward improvement. Humana will need to make significant cuts in benefits per member per month (PMPM) to maintain their margins, and strategic decisions may include exiting certain product markets. Despite these challenges, Mayo suggests that there could be drivers of upside within Humana’s 2024 guidance, such as historically low earnings generation and skepticism towards a reduced earnings contribution in subsequent quarters, considering the company’s historical trends and first quarter performance. These factors, combined with Humana’s acknowledged control over inpatient utilization and their conservative assumptions on operating expense trends, underpin Mayo’s optimistic outlook and Buy rating for Humana’s stock.

According to TipRanks, Mayo is a 3-star analyst with an average return of 1.5% and a 48.08% success rate. Mayo covers the Healthcare sector, focusing on stocks such as Humana, Pediatrix Medical Group, and Cigna.

In another report released yesterday, Oppenheimer also maintained a Buy rating on the stock with a $370.00 price target.

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Humana (HUM) Company Description:

Humana Inc. is a leading health insurance service provider in the United States. The company, through its Retail division, provides medicare benefits and state-based medicaid contracts, which are marketed on a retail basis to individuals. The Group and Specialty business offers employer group commercial fully-insured medical products and specialty health insurance benefits. Humana offers pharmacy solutions, provider services, home-based services, and clinical programs to the company’s health plan members as well as to third parties through the Healthcare Services segment.