Humana Inc (NYSE:HUM) stock rose 0.095% (As on October 9, 11:49:58 AM UTC-4, Source: Google Finance) after Bernstein SocGen Group shifted its stance on the company, raising the stock’s rating from Market Perform to Outperform, despite a decrease in the price target to $308 from the previous $405. The firm is updating the model, decreasing our target price, but upgrading the rating to Outperform based on a view that risks are being incorporated into expectations and price, coupled with improving sector outlook and potential upside catalysts, as per Bernstein analysts in a note.
The firm’s decision comes after Humana’s recent announcement of a significant drop in Stars ratings. The analyst anticipates a decline in STARS ratings for 2026, in line with Humana’s disclosure that about 25% of members will be in 4+ star plans. This is expected to be partially offset by pricing adjustments and member migration efforts, which could mitigate approximately two-thirds of the impact on the medical loss ratio (MLR). However, these efforts are also projected to worsen the operating expense ratio by 40 basis points, with a predicted membership decline of 4.1% for 2026.
The changes in Humana’s outlook have led to a revision in the firm’s financial model. The adjusted earnings per share (EPS) for fiscal year 2026 is now estimated to decline by approximately 24%, standing at $18.91 compared to the previous forecast of $24.90. The adjusted EPS for fiscal year 2027 is also projected to see a 16% decline, now at $25.67 from the earlier $30.53 estimate. The company raises 2024 individual Medicare Advantage annual membership growth by 75,000 to now anticipate annual growth of approximately 225,000, or 4.2 percent. The second quarter benefit ratio was positively impacted by favorable claims development and slightly higher than anticipated member risk scores. This favorability was partially offset by higher MA net inpatient costs.
The reduction in Humana’s price target to $308 from $405 is attributed to a lower target multiple, now set at 16.0 times the next twelve months’ (NTM) EPS, down from 18.0 times. This adjustment reflects the anticipated delay in earnings recovery due to the impact of lower STARS ratings. The new NTM EPS forecast has been adjusted downwards to $19.27 from the prior estimate of $22.50, driven by the expected lower enrollment and reduced star payments.
In addition, the company has announced an expanded partnership with Google Cloud and a minority investment in Healthpilot, demonstrating the orientation to embracing technology solutions that can create a more efficient, transparent, and consumer-centric healthcare ecosystem.