On Wednesday, Humana Inc . (NYSE:HUM) experienced a change in stock rating as Leerink Partners shifted its view from Outperform to Market Perform. Accompanying the downgrade, the firm also adjusted its price target for Humana, reducing it to $250 from the previous target of $400.
The decision to downgrade Humana's stock was influenced by several factors, including concerns over the company's future performance. Leerink Partners cited the recently disclosed challenges related to the Stars rating system that could impact the company's performance in 2026. The firm expressed a lack of confidence in its previous recommendation and pointed out difficulties in foreseeing a reasonable path towards Humana's target margins.
Leerink Partners elaborated on their concerns, highlighting the elevated trend and increased industry risks that may affect the second half of the year's medical loss ratio (MLR) estimates. Additionally, they noted ongoing broader challenges within the Medicare Advantage (MA) sector.
Despite the downgrade for Humana, Leerink Partners sees a mostly positive outlook for UnitedHealth (NYSE:UNH), maintaining an "Outperform" rating for the company. However, they did acknowledge that UnitedHealth might face some minor challenges with the Stars rating system as well.
In other recent news, Humana faces a significant decrease in its Medicare Advantage Star Ratings for 2025, with only about 25% of its members enrolled in plans rated 4 stars and above, a substantial reduction from 94% in 2024. This decline is largely attributed to Humana's contract H5216, which accounts for roughly 45% of Humana's Medicare Advantage membership and fell to a 3.5-star rating from a 4.5-star rating the previous year.
JPMorgan maintains a Neutral rating on Humana shares, acknowledging the company'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.
Similarly, Barclays suggested that a 10% reduction in bonus members could lead to a decrease of approximately $2.50 in earnings per share (EPS). Despite these challenges, Humana reported strong growth in its Medicare business in the second quarter of 2024, raising its revenue guidance by $3 billion, primarily due to membership growth. The company is actively implementing initiatives to improve operational discipline and enhance member and provider engagement.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Humana's current position, providing context to Leerink Partners' downgrade. The company's stock has indeed taken a significant hit, with a 20.95% decline over the past month and a substantial 42.62% drop over the last year. This aligns with Leerink's concerns about Humana's future performance.
Despite these challenges, Humana maintains a strong financial foundation. The company boasts a market capitalization of $27.73 billion and generated revenue of $112.04 billion in the last twelve months, with a 13.48% growth rate. Humana's P/E ratio of 16.36 suggests the stock may be undervalued compared to its earnings.
InvestingPro Tips highlight that Humana has raised its dividend for 7 consecutive years and holds more cash than debt on its balance sheet, indicating financial stability. These factors may provide some reassurance to investors amid the current uncertainties.
For those seeking a deeper analysis, InvestingPro offers 12 additional tips for Humana, providing a more comprehensive view of the company's prospects in light of recent developments.
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