Why Did SVB Leerink Initiate Humana With Outperform?

While Humana Inc.’s (NYSE: HUM) stock already seems to price in the near-term concerns around rebounding medical costs and high COVID-19 costs, it offers an opportunity to gain exposure to “the post-COVID accelerating growth environment and associated 2022 inflection,” according to SVB Leerink.

The Humana Analyst: Whit Mayo initiated coverage of Humana with an Outperform rating and a price target of $494.

The Humana Thesis: Humana’s stock has an “undemanding valuation” and its gap with UnitedHealth Group Inc.’s (NYSE: UNH) stock could close going ahead, Mayo said in the initiation note.

“We observe 3Q21 IP (inpatient) average daily census (ADC) in HUM’s states trending 10% above 1H21 levels with COVID up 200% and non-COVID -12%,” the analyst wrote.

“We believe the preponderance of the COVID surge is materially overweight Medicaid and commercial, rendering HIM less-exposed than feared,” he added.

“HUM boasts the highest organic growth of any MCO, as MA (Medicare Advantage) is the only line of business with any volume/member growth. Budget reconciliation efforts could seek to reduce MA funding, which HUM could likely “offset” through benefit design,” Mayo further stated.

HUM Price Action: Shares of Humana had risen by 1.26% to $403.95 at the time of publication Monday.

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