Humana’s stock keeps falling amid fears that Medicare Advantage problems will last into next year

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Shares of Humana Inc extended their fall to near two-year lows on Friday, as some Wall Street analysts expressed concerns that the health insurance services company’s Medicare Advantage crisis isn’t a swift solution.

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stock hum,
-1.06%
Intraday trading lost up to 4.4%, before narrowing some losses to 1.5% in afternoon trade, putting them on track for their lowest close since April 2020.

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The stock was shaken for a 19.4% loss on Thursday, the biggest one-day sell-off since a 19.5% drop on February 26, 2009, the company said on 2022 net subscriptions for its individual Medicare Advantage (MA) products. growth is expected. 150,000 to 200,000, down sharply from its previous growth estimate of 325,000 to 375,000, mainly due to a highly-anticipated finish during the annual election period.

At the Goldman Sachs Healthcare CEO Conference on Thursday, Chief Executive Bruce Broussard tried to emphasize that the lower outlook was not the result of a sales issue, adding that “it was really a retention issue,” which he called ” Changes and evolution of the distribution structure within the industry, according to the FactSet transcript.

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“We’ve always believed that we don’t need to be the cheapest because we just provide a lot of value outside of the product we’re selling,” Broussard said. “And so, when we entered the market, we came to the conclusion that we would have a loss, but we were very confident that we would be able to sell it.”

And while sales were “very close” to expectations, the company had trouble keeping the customers it had.

FactSet, Marketwatch

Given the increasing use of “telephonic” sales over the years, and with more money flowing into marketing and areas to motivate sales persons, competition has become a problem for Humana. Broussard said the market was commoditizing, and he decided “we will not play that game.”

“For those of us who are sold through that channel, being deprived of that and then secondly, our combination with the low value proposition in the market really created this opportunity… the sales people in the industry. To brainstorm, especially our members,” Broussard said.

He tried to reassure investors that while he didn’t believe the competition’s aggressive strategy was sustainable, Humana planned to invest in 2023 “that will significantly improve our value proposition.”

Humana stock is now down 19.2% over the past 12 months, while SPDR Health Care Select Sector exchange-traded fund XLV,
-0.34%
15.1% and the S&P 500 index SPX has advanced,
-0.27%
has risen 23.2%.

Analyst Kevin Caliendo at UBS said the stock’s selloff was “astonishing” on the downbeat outlook, with Broussard’s comments raising concerns that it may take some time to address concerns over increased competition.

“Given the ongoing reliability issues, growing concerns about the lack of models and catalysts, it is going to be difficult for investors to relax around the margin/growth outlook until 2022 or early 2023, perhaps even as early as 2023. capping [valuation] Multiple,” wrote Caliendo in a note to clients.

He reiterated his neutral rating on the stock for the past three years and placed his price target at $486.

Truist analyst David MacDonald maintained his hold rating, but lowered his stock price target from $520 to $445, believing the company’s “conservative” approach to pricing was a “disappointing” approach. Cause. Deutsche Bank’s George Hill also reiterated his hold rating but lowered his price target to $418 from $476.

Meanwhile, Mizuho’s Ann Hines reiterated its buy rating on Humana for at least the past 2 1/2 years, adding that its price target was placed at $500, adding that depressed MA membership growth was disappointing, The sale of stock appeared to be “overdone.”

Although Humana blamed increased competition for low MA membership retention, Hines believes the real problem was that the company was being “over-conservative” with 2022 pricing.

And while UBS’s Caliendo also said that Humana’s problems were probably company specific, others’ shares in the MA business also lost ground.

UnitedHealth Group Inc. Shares of UNH,
-1.83%
Friday fell $9.03, or 1.9%, in afternoon trading, after sinking $20.04, or 4.1%, on Thursday. The two-day price drop to $29.07 has acted as a 192-point drag on the DJIA of the Dow Jones Industrial Average,
+0.19%
price, while the Dow has lost a total of 80 points at the same time. Read Businesshala’s “Market Snapshot” column.

Elsewhere, Cigna Corp.’s stock CI,
+2.50%
After falling 3.8% on Thursday, it gained 2.3% on Friday, while Alignment Healthcare Inc. ALHC,
-10.65%
Shares fell 10.7% on Friday after falling 5.9% a day earlier.

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