Why Did SVB Leerink Initiate Humana With Outperform?

While Humana Inc.’s 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 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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