On Wednesday, Barclays reiterated its Overweight rating and $364.00 price target on Humana (NYSE:HUM), following a conference call with the company's executives about the recent loss of its bonus star ratings. CEO Jim Rechtin expressed disappointment with the results and acknowledged the need for a diversified risk strategy over the coming years. He also noted that the star scores currently posted are preliminary and under discussion with the Centers for Medicare & Medicaid Services (CMS).
During the call, Rechtin outlined that four of Humana's contracts lost their bonus rating, with three being one metric away from a 4-star rating, including their largest contract, H5216. This measure is currently under appeal, which could extend beyond the initial October 10 deadline. The company plans to focus on four key areas to impact future measures and aims to achieve a 3% target by 2027, despite acknowledging increased risks.
The Q&A session revealed that Humana does not anticipate significant additional investment in brokers for member retention and was unable to provide a quantifiable impact on 2026 earnings per share (EPS) due to the appeals process. The company mentioned that it does not expect Total Benefit Cost (TBC) thresholds to be an issue in 2026 but could be a factor in 2027.
Humana's executives also discussed the factors that drove the cut points higher, which included some moving beyond their models and historical experience. They emphasized a multi-year focus to return to better performance levels and did not comment on whether CMS's release of star ratings on Plan Finder was intentional.
In conclusion, Humana remains focused on recovering from the recent star ratings setback, with strategies in place to address the challenges and a continued commitment to achieving their margin goals.
In other recent news, Humana and Evolent Health (NYSE:EVH) have been the focus of several analysts' reviews due to recent developments. Humana's Medicare Advantage Star Ratings for 2025 show a significant decrease, with only about 25% of its members enrolled in plans rated 4 stars and above, a substantial drop from 94% in 2024. This is largely attributed to Humana's contract H5216, which holds a significant portion of Humana's Medicare Advantage membership and fell to a 3.5-star rating from a 4.5-star rating.
Analysts from Morgan Stanley, Leerink Partners, JPMorgan, and Mizuho have all weighed in on these developments. Morgan Stanley maintained an Equal-weight rating on Humana, despite the ratings drop, while Leerink Partners downgraded Humana's stock from Outperform to Market Perform.
JPMorgan maintained a Neutral rating, acknowledging Humana's efforts to appeal the process with the Centers for Medicare & Medicaid Services (CMS) and implement cost-saving measures. Mizuho's trade desk, however, highlighted concerns over the company's financial outlook, particularly into fiscal year 2026, due to the lower star ratings.
Simultaneously, Evolent Health's business may be affected by updates from Humana, a significant customer contributing to 21.8% of Evolent's second-quarter 2024 revenue. Despite this, JPMorgan maintained its Overweight rating and $45.00 price target for Evolent Health, indicating that the company's fees for managing specialty care in Medicare Advantage contracts are unlikely to be impacted.
InvestingPro Insights
Recent InvestingPro data provides additional context to Humana's current situation. Despite the challenges highlighted in the article, Humana maintains a significant market presence with a market capitalization of $30.0 billion. The company's revenue growth of 13.48% over the last twelve months demonstrates its ability to expand its business even in the face of regulatory hurdles.
InvestingPro Tips suggest that Humana has been aggressively buying back shares, which could be seen as a sign of management's confidence in the company's long-term prospects. Additionally, Humana has raised its dividend for 7 consecutive years, indicating a commitment to shareholder returns despite the recent setbacks in star ratings.
The stock's recent performance aligns with the concerns raised in the article, with InvestingPro data showing a 20.95% price decline over the past month. This drop has pushed Humana's P/E ratio down to 15.12, potentially presenting a value opportunity for investors who believe in the company's ability to navigate its current challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 9 additional tips that could provide further insights into Humana's financial health and market position.
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