Goldman Sachs Has Improved Humana's Competitive Standing

Goldman Sachs analysts upgraded shares of Humana (NYSE:HUM) to Buy with a $652 price target in a research note published on Tuesday.

The company's improved "competitive positioning in MA and underappreciated HC Services opportunity should outweigh the potential RADV impact," which Goldman Sachs estimates to range between $2.6 and $5.8 billion (NPV) before offsetting factors.

Analysts stated, "We see a strengthening earnings outlook as a result of improved competitive positioning in Massachusetts, which has reaccelerated member growth for 2023 and could lead to multiple years of share gains in 2024 when many competitors will face Stars headwinds." "We also see an attractive and undervalued opportunity in the health care services sector, with primary care earnings having the potential to outperform its September guidance,"

While analysts assert that the company is aware of the significant risk posed by the forthcoming RADV ruling, their EPS estimates for 2024-2025 are 4% higher than the industry average.

This reflects "3% higher member growth and a primary care EBITDA opportunity of $205mn-$395mn for 2025," which is "above the company's $100-$200mn outlook in its mid-term guidance, with more of this EBITDA hitting the P&L as WCAS centers come onto the balance sheet."

"Despite the stock's outperformance in 2022 (+18% YTD vs. MCO group +13%), the stock trades in line with its historical median despite higher forward EPS CAGR of 15% vs. its 3-year history of 12%," concluded the analysts.