On May 12, 2014, Humana Inc. (NYSE: HUM) crafted a new 52-week high of $123.94 after posting impressive first-quarter 2014 earnings results, which included a 21.13% positive earnings surprise. With respect to earnings trend, this healthcare services provider has delivered positive earnings surprises in three of the last four quarters with an average beat of 5.3%.
In fact, shares of Humana rose 3.8% over the last few trading sessions to $123.62 since the company reported first-quarter earnings on May 7, 2014. Also, the year-to-date return of the stock is 19.76%, much above the S&P 500's return of 2.60% as well as that of other players in the industry like Aetna Inc. (NYSE: AET) and UnitedHealth Group Incorporated (NYSE: UNH) that generated returns of 10.47% and 3.24%, respectively over the same period.
During the first quarter, Humana's top line increased 11.7% year over year, reflecting growth in its Retail and Employer Group segments. Moreover, the contract with Dignity Health and the ACO with Mercy are expected to boost Humana's services, particularly to the Medicare Advantage members, thereby making way for further top-line growth.
During the first quarter, Humana's cash position remained strong, which helped the company to engage in share repurchases and dividend payouts. In fact, to return more value to shareholders, in April 2014, Humana enhanced its share repurchase program by authorizing a new $1 billion program.
Additionally, based on strong performances of the existing operations of Humana, the company reiterated its 2014 earnings outlook at $7.25–$7.75 per share. However, we remain overtly optimistic about the stock and have our projection at $7.77 for full-year 2014. For full-year 2015, the Zacks Consensus Estimate is pegged at $8.81 per share, translating into a year-over-year improvement of 13.39%.
Humana currently caries a Zacks Rank #2 (Buy). Investors interested in the healthcare services industry may also consider stocks like Aetna and Health Net, Inc. (NYSE: HNT). Both of these have the same Zacks Rank as Humana.
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