Zacks Investment Research downgraded shares of Humana Inc. (HUM) from NEUTRAL to UNDERPERFORM on August 17, 2012, with a target price of $62.00.
We are downgrading our recommendation on Humana to Underperform from Neutral on the back of the company's blinkered focus on Medicare Advantage plans that increases its revenue dependency on one segment, rising expenditure, overhang of litigation charges and increasing competition in the industry. Its second-quarter earnings though beat the Zacks Consensus Estimate lagged year ago earnings owing to lower pre-tax income in the Retail segment, which offset the earnings growth in the Employer Group and Health and Well-being Services segments. Improved medical and specialty memberships led to revenue growth, which was offset by higher expenses and high benefit ratio utilization, thus leading to reduced earnings guidance for 2012. However, share buyback and dividend payment provided some optimism. Meanwhile, acquisitions are expected to enhance the company's Medicare coverage. Overall, we believe the company needs to be prudent while managing its expenditures and focus on its growth strategy through acquisitions and diversify its sources of earning premiums to attract long-term investors.
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