By Sam Boughedda
Goldman Sachs analysts upgraded shares of Humana (NYSE:HUM) to Buy with a $652 price target in a research note on Tuesday.
They told investors the upgrade is due to the company's improved "competitive positioning in MA and underappreciated HC Services opportunity that should outweigh the potential RADV impact," which Goldman Sachs sizes at $2.6-$5.8bn (NPV) before offsets.
"We see a strengthening earnings outlook as improved competitive positioning in MA has reaccelerated member growth for 2023 and could deliver multiple years of share gains as many peers face Stars headwinds in 2024," said the analysts. "We also see an attractive and still underappreciated HC services opportunity, with primary care earnings having potential to outperform guidance given at its Sept. investor day."
While the analysts said the firm is mindful of the notable risk associated with the upcoming RADV ruling, they are also 4% above consensus EPS for 2024-2025.
This reflects "3% higher member growth and a 2025 primary care EBITDA opportunity of $205mn-$395mn in EBITDA" based on the firm's waterfall estimates, "above the company's $100-$200mn outlook in its mid-term guidance, with more of this EBITDA hitting the P&L as WCAS centers come onto the balance sheet."
"Despite the stock's outperformance in 2022 (+18% YTD vs. MCO group +13%), the stock trades in-line with its historical median despite higher forward EPS CAGR of 15% vs. its 3-yr. history of 12%," concluded the analysts.