Humana Inc Upgrade by Bernstein Analysts

Humana Inc (NYSE:HUM) received a notable upgrade from Bernstein analysts on Tuesday, moving its stock rating from Market-Perform to Outperform, despite the company's recent challenges.

Optimism About Prospects

The analysts are optimistic about Humana's prospects, citing several factors contributing to a more favorable outlook. They emphasize that risks are now incorporated into expectations and price, along with an improved sector outlook and potential upside catalysts.

Improved Operating Outlook

Bernstein believes that Humana's operating outlook for Medicare Advantage (MA) has improved, with uncertainties regarding risks such as STARS ratings and repricing execution becoming clearer.

Stock Price Adjustments

The analysts noted that the stock price has been reduced, enhancing the balance of upside risks compared to downside risks, which include potential takeover interest and Pharmacy Benefit Manager (PBM) outsourcing.

Financial Model Adjustments

Following Humana's announcement of a significant decline in STARS ratings, Bernstein has adjusted its financial model. They expect decreased STARS ratings for 2026, estimating that about 25% of members will be in four-plus star plans.

While this will negatively impact earnings, Bernstein predicts that pricing adjustments and member migration efforts could mitigate about two-thirds of the Medical Loss Ratio (MLR) impact, leading to an estimated 24% decline in adjusted earnings per share (EPS) for FY26.

Revised Price Target

Consequently, Bernstein has lowered its price target for Humana from $405 to $308 and reduced its target multiple to 16.0x next-twelve-month EPS, down from 18.0x, reflecting a delay in earnings recovery due to STARS ratings issues.

Conclusion

Despite these challenges, the analysts' upgrade reflects cautious optimism about Humana's potential moving forward.