We issued an updated research report on Humana Inc. HUM on Oct 9, 2015.
Humana is expected to report third-quarter results in the first week of Nov 2015. The Zacks Consensus Estimate is pegged at $2.14 per share, which represents 15.9% growth.
Humana is set to be acquired by Aetna to form a combined company by the second half of 2016. On closing, Aetna Inc. AET will own 74% of the combined entity, while Humana will hold the remaining 26%. Per the terms of the agreement, which has been unanimously approved by the boards of directors of each company, Humana’s shareholders are slated to receive $125 in cash and 0.8375 Aetna shares for each Humana share.
Recently, the company entered into a good number of partnership agreements to boost its operations. Last week, it strengthened its Accountable Care relationship with one of the divisions of DaVita HealthCare Partners, Inc. DVA – HealthCare Partners Nevada – by opening two primary care practices in Nevada. Earlier, Humana entered into a multi-year research collaboration with one of the leading global specialty pharmaceutical companies, Allergan plc AGN. The deal aims to address the key issues as well as explore new ideas and ways to improve the health and well being of patients, members and their caregivers.
Also, the company entered into ACO agreements with UT Medicine, the medical practice of the School of Medicine of the University of Texas Health Science Center at San Antonio, Partners in Primary Care and Doylestown Health Partners. Moreover, the tie-up with one of the leading cloud-based health exchange and benefits administration technology platforms – PlanSource – is expected to help the company reach out to more customers.
Humana has been expanding its business platform over the past few years. The company has developed various commercial products designed to provide choices to employers facing substantial premium increases from medical cost inflation. The company boasts a strong financial position and scores strongly with the credit rating agencies.
However, the higher-than-expected expenses are likely to mar financials to some extent in the long term due to capital erosion. Also, benefit expenses are expected to increase over the next couple of years due to the restriction on charging higher premiums from people with pre-existing medical conditions. Moreover, such memberships have been rising, thereby weighing on margins.
Also, the overhang of litigations continues to have an adverse effect on the company. This fee is expected to increase to $866 million in 2015, which is definitely a headwind for the company’s earnings. Moreover, increased capital expenditure raises caution.
Humana currently carries a Zacks Rank #3 (Hold).
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