On Thursday, Piper Sandler adjusted its stance on Humana Inc . (NYSE:NYSE:HUM), downgrading the stock from Overweight to Neutral. The firm also revised its price target to $274 from the previous $392. This decision follows the release of an 8K form by Humana, revealing that only 25% of the company's Medicare Advantage (MA) and Special Needs Plans (SNP) members are enrolled in plans with a 4.0+ star rating for 2025. This is a significant drop from the 94% of members in such highly rated plans for 2024.
The downgrade was particularly influenced by the performance of contract H5216, which saw a decline from 4.5 stars in 2024 to 3.5 stars for 2025. This contract accounts for approximately 2.8 million MA/SNP members, representing 45% of Humana's total MA/SNP enrollment. The star ratings are still preliminary and subject to change pending the outcome of four appeals.
Piper Sandler noted that if the preliminary ratings are maintained without any adjustments, the impact on Humana's earnings growth in 2026 could be substantial. The firm anticipates that the lower star ratings could significantly affect the company's earnings per share (EPS) projections for 2025, leading to a revised price target based on a 15.5 times multiple of the estimated 2025 EPS. Previously, the price target was based on a 14.5 times multiple of the projected 2026 EPS.
The revised price target and stock rating reflect concerns that the decline in star ratings could pose challenges to Humana's earnings potential in the near future. Piper Sandler's updated model takes into account the potential implications of the current star ratings on Humana's financial performance.
In other recent news, Humana Inc. has been dealing with significant developments. The company's Medicare Star ratings have taken a hit, dropping from 94% of members in plans rated above 4 Stars to just 25%. This decline is mainly due to Humana's contract H5216, which accounts for nearly 45% of Humana's Medicare Advantage membership, falling to a 3.5-star rating from a 4.5-star rating.
Analysts have reacted to this development with mixed opinions. BofA Securities downgraded Humana from Buy to Underperform, citing anticipated revenue impact due to a reduction in bonus payments from Medicare. However, Barclays and TD Cowen have maintained their Overweight and Buy ratings respectively. Leerink Partners downgraded Humana's stock from Outperform to Market Perform due to future performance concerns stemming from the lower star ratings.
Furthermore, Wells Fargo's analysis suggests that Humana could face a revenue headwind of approximately $2.9 billion due to potential risks for certain contracts. This could translate to an $18.93 impact on earnings per share (EPS). The company is actively exploring options to mitigate the expected revenue headwind for 2026 related to the 2025 Star ratings.
Moreover, Humana's Medicare Advantage offerings for 2025 have raised market concerns due to perceived pricing strategy issues, according to Bernstein's analysis. Despite these challenges, Humana is actively exploring options to mitigate the expected revenue headwind for 2026 related to the 2025 Star ratings. These recent developments highlight the evolving landscape for Humana and its stakeholders.
InvestingPro Insights
In light of Piper Sandler's downgrade of Humana Inc. (NYSE:HUM), recent InvestingPro data provides additional context to the company's current financial situation. Despite the challenges highlighted in the article, Humana maintains a strong market position with a market capitalization of $29.06 billion. The company's revenue for the last twelve months as of Q2 2024 stood at an impressive $112.04 billion, with a revenue growth of 13.48% over the same period.
However, reflecting the concerns raised by Piper Sandler, Humana's stock has indeed taken a significant hit recently. InvestingPro data shows a 21.04% decline in the past week and a 32.01% drop over the last month. This aligns with the InvestingPro Tip that the stock "has taken a big hit over the last week."
On a positive note, an InvestingPro Tip suggests that Humana "has maintained dividend payments for 14 consecutive years," indicating a level of financial stability despite current challenges. Additionally, the company is "trading at a low revenue valuation multiple," which could present an opportunity for investors looking beyond the immediate concerns raised in the article.
For readers seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Humana, providing a broader perspective on the company's financial health and market position.
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