5 Reasons To Like Humana: A Look At Earnings Power, Other Moving Parts

Humana Inc HUM reported a top and bottom line beat last week. Following the announcement, analysts at JPMorgan upgraded the stock from Neutral to Overweight, while raising their price target from $163 to $202.

Analysts Gary Taylor, Patrick Feeley and Tim Murray shared five reasons for the upgrade:

• 1) Their improving view of the company’s underlying earnings power, which implies larger downside protection in the case that Aetna Inc AET’s acquisition is not green-lit by the court. This protection, in turn, gives JPMorgan the confidence it need to pursue the current 20 percent upside from the pending $224 per share Aetna takeout offer.
• 2) “A more favorable Medicare Advantage outlook supported by Paul Ryan’sACA replacement plan.”
• 3) A higher likeliness of a permanent HIF repeal.
• 4) Decreased “political risk for the Republican Federal Judge to approve the transaction.”
• 5) The absence further “public option” concerns weighing upon the industry.

In this context, the firm has decided to raise the probability of the deal being approve from 35 percent to 50 percent.

Humana closed Thursday at $192.88, up 3.7 percent.