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Jefferies Raises Price Target on Humana (HUM), Sees 12-13% Upside On Q1 Estimates

April 14, 2011 9:21 AM EDT
Get Alerts HUM Hot Sheet
Price: $346.72 -0.8%

Rating Summary:
    16 Buy, 16 Hold, 0 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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Jefferies is reiterating its Buy rating on shares of Humana (NYSE: HUM) and is raising its price target from $74 to $82.

The firm reports that Health Net, Inc. (NYSE: HNT), Humana Inc. (NYSE: HUM), and HealthSpring, Inc (NYSE: HS) is its top picks for posting an upside in Q1.

Currently in the market utilization trends are flat-ish, and unit pricing remains in-check. The firm notes that cost trends may be returning to more normal levels, evidence suggests MLRs could run below guidance for Q1.

With earnings being positively related with MLR changes, Jefferies is assuming a 50bps reduction in Q1 MLR for each company in the market. The firm now believes that HNT, HUM, and HS will post its Q1 results with a 12-13% upside of the streets estimates, while Aetna Inc. (NYSE: AET), Coventry Health Care (NYSE: CVH), UnitedHealth Group Inc. (NYSE: UNH), and WellPoint (NYSE: WLP) should post an upside of 6-7%. Jefferies thinks that CIGNA's Corp. (NYSE: CI) results will only top the Streets by 3%.

HNT, HUM, and HS all stand to benefit the most from a 50 bps lower MLR since they have a lower proportion of earnings from investment income and other non-risk health insurance premiums. The firm believes that the market has not fully reflected the Q1 potential EPS upside for the companies as the Streets FY12 estimates are 4.5% higher than the guidance for the MCO group.

The firm comments that, "An unfavorable RADV methodology decision by CMS is still a risk on investors' minds, and would be most harmful to HS, HUM, and UNH. CMS has given no indication of an update, but we suspect a decision in the next month or two that is milder than the draft language."

For more ratings news on Humana click here and for the rating history of Humana click here.

Shares of Humana closed at $70.71 yesterday.


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