Analysts: Humana Growth Outlook 'Impressive'

Humana Inc's (NYSE: HUM) business fundamentals are solid despite its 19 percent decline in third-quarter earnings, an analyst said Monday.

Its shares took a significant hit Friday when it posted quarterly results and offered a 2015 outlook below expectations. Humana traded recently at $132.50, up 1.5 percent, but still off more than 4 percent from last week.

Despite the disappointment, FBR's Steven Halper called the health insurer's expected 17 percent earnings growth rate for 2015 "impressive in its own right" and said expectations were "simply too high."

On the other hand, Deutsche Bank's Scott Fidel sees "a significant drag on net margins" for the company next year, from an expected increase in an Affordable Care Act industry fee collected from health insurers based on net written premiums.

The fee, which first kicked in this year, is intended to help fund federal and state health insurance exchanges.

Fidel maintained a Sell rating on Humana while Halper raised his target on the company by 20 percent to $132, but maintained a Market Perform rating.

Humana blamed its third-quarter earnings decline on higher investments in healthcare exchanges and state-based contracts as well as higher costs associated with a new treatment for Hepatitis C.

The company said 2015 earnings growth would be hurt by offset by higher industry fee and a reduction in 2015 Medicare rates.

But it forecast 2015 earnings of $8.50 to $9 per share, up from $7.40 to $7.60 in the current year, based on "strong growth" in Medicare offerings, break-even results in its supplemental insurance business and lower spending on state-based contracts.

Credit Suisse's Ralph Giacobbe maintained a Neutral rating on Humana Monday and raised his target 13 percent to $140 per share, while offering little immediate comment on results.