Analysts revisit Humana stock price targets amid Medicare Advantage hit

When then-President George W. Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, he said the act would help achieve "a more modern Medicare system that includes prescription drug coverage and choices for seniors."

Under the act, private health plans approved by Medicare became known as Medicare Advantage Plans.

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Roughly 33.4 million people were enrolled in a Medicare Advantage plan at the start of 2024, according to the medical publication Stat, which analyzed federal data.

Just over half of Americans on Medicare are enrolled in one of the plans large insurance companies offer.

Earlier this month, shares of Humana (HUM) , UnitedHealth (UNH) and CVS Health (CVS) tumbled when the U.S. Centers for Medicare & Medicaid Services said Medicare Advantage payments would rise only by an average of 3.7% next year.

Analysts were looking for an increase of around 4.7%, based on the CMS's January proposal of 3.7%, following increases of around 1.22% each year between 2019 and 2024, according to preliminary CMS figures.

The payments reimbursing insurers for treatment of U.S. patients over age 65 will be effectively lower than current levels when adjusted for costs and inflation.

Analysts adjusted their stock price targets for Humana. Humana

CEO: Company facing 'challenging time'

On Wednesday, Humana reported first-quarter earnings of $7.23 per share. compared with $9.38 a year earlier, surpassing the FactSet consensus of $6.12.

Revenue totaled $29.61 billion, up from $26.74 billion, beating Wall Street's call for $28.52 billion.

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However, Humana withdrew its already downscaled 2025 profit forecast, citing disappointing government Medicare reimbursement rates.

At last check, Humana's shares were down $2.24% to $308.91. On Jan 2, the company's stock went for $470 per share.

Humana CEO Bruce Broussard acknowledged to analysts during the company's earnings call "that the industry is experiencing a dynamic and challenging time we must navigate."

"And while the current environment will create disruption for the industry in the near term, we continue to believe in the strong core fundamentals and growth outlook of the [Medicare Advantage] MA industry, and our ability to effectively compete in MA market remains intact," he said.

Regarding 2025, Broussard said the company expected benefit levels, planned stability and choice for seniors to be negatively impacted by the final MA rate notice, "which is not sufficient to address their current medical cost trend environment and regulatory changes."

Several Wall Street analysts adjusted their stock price targets for Humana after the earnings report.

Oppenheimer analyst Michael Wiederhorn lowered the firm's price target on the company's shares to $370 from $415 while keeping an outperform rating on the stock.

The firm said Humana handily topped first-quarter expectations and maintained the full-year 2024 guidance, highlighted by improving inpatient care trends in March and leading to an in-line medical loss ratio, or MLR, without any contribution from favorable fourth-quarter repayments for rehab services that seems likely.

Analyst sees acquisition potential

Looking forward, management pulled its 2025 growth guidance of $6 to $10 earnings per share due to the rate pressures and Total Beneficiary Cost (TBC) limitations and said it will return to 3% margins beyond 2026, Oppenheimer said.

Overall, Humana continues to face the magnified impact of Medicare Advantage due to its significant exposure. Still, the firm added that it boasts a portfolio with significant long-term margin upside.

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RBC Capital lowered the firm's price target on Humana to $353 from $415 but kept an outperform rating on the shares after the first-quarter results and updated outlook.

While management is taking 2025 adjusted earnings per share growth targets off the table for now, the company also stressed its continued commitment to margin improvement next year. The firm said pulling guidance does not signal that 2025 is a no-growth year.

RBC added that it is still reducing its 2025 outlook for Humana to $20.28 per share from $23.87 per share.

Cantor Fitzgerald adjusted its price target for Humana to $360 from the previous target of $391, while maintaining a neutral rating on the stock.

The firm's analysts noted that while Humana has maintained its full-year MLR at 90% and its forecast of roughly $16 earnings per share there remains some uncertainty around the new guidance for 2025.

On Monday, Jefferies analyst David Windley said that Cigna Group (CI) could resume its abandoned plan to acquire Humana after the stock prices have moved to the point where a deal makes financial sense, Bloomberg reported.

The two companies reportedly discussed a cash-and-stock deal in November, but talks fell when the sides couldn't agree on a price. But now, with Humana's stock falling and Cigna's climbing, an acquisition seems plausible, Windley said.

"The math now works for a CI+HUM fusion," said Windley, adding that a deal for about $420 per Humana share was possible.

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