Humana Remains On Growth Trajectory: Should You Add?

On Aug 18, we issued an updated research report on Humana Inc. (NYSE:HUM) .

Humana’s second-quarter 2016 operating earnings per share of $2.30 beat the Zacks Consensus Estimate by 1.8%. The bottom line also improved 30% year over year buoyed by benefits from Humana’s clinical programs along with lower healthcare costs.

With respect to the surprise trend, this Zacks Rank #1 (Strong Buy) health maintenance organization posted positive surprise in three of the last four quarters, with an average beat of 1.32%. Moreover, the Zacks Consensus Estimate has been revised upward over the last 30 days.

Humana has been benefiting from solid performances in Individual Medicare Advantage and Healthcare Services businesses. Also, the company’s Medicare business that comprises Medicare Advantage and Medicare Part D Prescription Drug Plan (PDP) contracts with the federal government has shown excellent performance over the past few years. The Medicare Advantage business has been delivering strongly due to operating initiatives that have resulted in favorable prior period medical claims development and lower current-year utilization.

Humana boasts financial strength backed by its hefty cash balance. Effective control on debt financing also helped Humana manage its capital. The company’s relentless focus on creating shareholders’ value through capital deployment activities drove long-term growth.

Following strong second-quarter earnings, Humana lifted its full-year guidance for 2016 adjusted earnings per share at a minimum of $9.25 on $54–$54.5 billion revenues. The company also raised its projection for Individual Medicare Advantage membership and stand-alone PDP membership. Nonetheless, Humana lowered the same for Group Medicare Advantage membership and Individual commercial membership.

However, the pending merger with Aetna (NYSE:AET) that is grappling with legal issues related to the U.S Department of Justice, unprofitable Public Exchanges Business, weak performance by Individual Commercial Business as well as Group Medicare Advantage businesses along with escalating expenses are major drags for Humana.

Other Stocks that Warrant a Look

Investors interested in the industry can also consider stocks like The Joint Corp. (NASDAQ:JYNT) , UnitedHealth Group Inc. (NYSE:UNH) and Wellcare Health Plans Inc. (NYSE:WCG) . Each of these stocks holds a Zacks Rank #2 (Buy).