Humana Analysts More Bullish After Health Insurance Fee Repeal

Humana Inc HUM is likely to benefit from the permanent repeal of the health insurance fee, or HIF, beginning Jan. 1, 2021, rendering the stock more attractive, according to sell-side analysts.

The Analysts

JPMorgan analyst Gary Taylor reiterated an Overweight rating on Humana and raised the price target from $437 to $448. 

Goldman Sachs analyst Stephen Tanal has a Buy rating on Humana and lifted the price target from $397 to $425. 

Humana Well-Positioned To Gain Market Share In 2021, JPMorgan Says 

The consensus estimates for Humana haven't yet reflected the anticipated improvement in Medicare Advantage benefits, enrollments and margin in 2021-2022, stemming from the repeal of the HIF, Taylor said in a Friday note. 

Humana has a greater ability to boost benefits and enrollment versus peers for 2021 given that it had the most conservative benefits and margin balance for 2020, the analyst said. 

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JPMorgan raised its 2021 retail MA enrollment growth estimate for Human from 7.5% to 9% but lowered its retail MA pretax margin outlook for 2021 from 4.3% to 3.6%, reflecting a material strategic benefit investment.

The analyst also increased the 2021 EPS estimate for the company from $21.44 to $21.98 and introduced a Street-high EPS estimate of $25.59.

Humana continues to be one of JPMorgan's top picks in 2020.

"We call HUM 'the simplest story in healthcare', nearly a pure-play on strong organic Medicare Advantage (MA) industry enrollment growth and well positioned to gain market share in 2021," Taylor said.

"The scarcity value of organic growth stories like HUM will command a premium P/E valuation to the S&P 500."

HIF Repeal Most Material To Humana, Goldman Says 

Meaningful upward estimate revisions to the 2021 consensus estimates for Humana are likely due to the HIF repeal, Tanal said in a Friday note. 

MA managed care organizations have been the most challenged by the HIF, given the lack of reimbursement for its pre-tax impact, which works out to $1.2 billion for Humana in 2020, the analyst said. 

Goldman's 2021 adjusted EPS estimate for Humana is being adjusted 10% higher from $21.95 to $24.10, 12% above the current consensus. The firm sees the HIF's repeal as most material for Humana.

Price Action

Humana shares were trading 1.17% higher at $367.50 at the time of publication Friday.