Is it time to get back into the health insurer stocks? Humana Inc. (HUM) recently raised 2011 earnings guidance despite rumblings coming out of Washington about a do-over on healthcare reform. Shares are cheap, with a forward P/E of just 10.
This Zacks #1 Rank (strong buy) provides health, pharmacy and supplemental insurance to employer groups, government programs, and individuals in the US. It operates through 240 worksite medical facilities and 300 medical centers.
On Feb 24, the company announced it was entering into a 5-year agreement effective May 1 with AmerisourceBergen (ABC) where it will be Humana’s primary wholesaler for drug purchasing. AmerisourceBergen is a large branded and generic drug provider.
Humana Surprised For the 4th Quarter in a Row
On Feb 7, Humana reported its fourth quarter results and crushed the Zacks Consensus Estimate by 107%. Earnings per share were $1.65 compared with the consensus of just 80 cents. The company made $1.48 in the same quarter a year ago.
Revenue jumped 8% to $8.4 billion from $7.6 billion in the fourth quarter of 2009. Average membership in Medicare Advantage Plans rose 17% but were partially offset by lower average stand-alone PDP and commercial fully-insured group medical membership.
Raised 2011 Guidance
Humana saw strong Medicare Advantage membership growth at the end of 2010 which was enough to make it bullish on 2011. Medicare Advantage membership is expected to rise between 90,000 and 110,000 in 2011.
As a result, the company raised 2011 guidance to the range of $5.70 to $5.90 from $5.45 to $5.65 per share.
Zacks Consensus Estimates Rise for 2011 and 2012
After the company’s report and guidance increase, analysts moved to raise full year estimates.
The 2011 Zacks Consensus Estimate jumped 35 cents to $6.29 per share with 13 estimates moving higher in the last 30 days.
Similarly, for 2012, the Zacks Consensus is up 31 cents to $6.54 per share in the last month.
Humana Is a Value Stock
In addition to a low P/E ratio, Humana has other valuations which scream out “value.”
Its price-to-book is just 1.5, which is easily a value indicator as it’s under 3.0. But the P/B ratio is also under its peers such as UnitedHealthcare (UNH), which is also a value stock but has a P/B of 1.8.
The company’s price-to-sales ratio also beats UnitedHealthcare’s at 0.3 compared to 0.5. But both signal value.
Shares Off the Lows
Unlike many other stocks, Humana’s shares have not yet retaken previous pre-recession highs despite rallying off the March 2009 lows.
Still, shares have been on a nice upward trajectory in the last 2 years as you can see in the 5-year chart below.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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