Zacks Investment Research downgraded shares of Humana Inc. (HUM) from OUTPERFORM to NEUTRAL on September 04, 2013, with a target price of $99.00.
We are downgrading our recommendation on Humana to Neutral based on rising expenses and declining operating cash flow, which may outweigh the positives that includes strong financial position, Medicare membership growth, stable ratings, and inorganic growth. Moreover, dependence on Medicare Advantage plans, adverse impact of healthcare reform and high competition may raise long-term risks. Nevertheless, Humana's second-quarter earnings surpassed the Zacks Consensus Estimate due to strong operating performance across segments, led by higher revenues and membership. Lower operating cost also supported the benefit ratios. However, operating cash flow and investment income deteriorated. Raised guidance for 2013 was partially offset by marginally reduced revenue guidance. Overall, we believe that the company needs to follow prudent expense management and focus on growth through acquisitions and diversifying its earning sources to attract long-term investors.
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