Street View: Rating cut for Humana's Medicare plan puts 2027 margin target at risk
** Humana HUM.N said on Wednesday enrollments in its top-rated Medicare insurance plans dropped sharply, sending shares down over 20% on Wednesday and wiping nearly $4 bln from the insurer's market value
** Co said the quality rating of one of its plans, which accounts for nearly half Medicare Advantage (MA) memberships, fell to 3.5 stars down from 4.5 last year
** Medicare plans cover Americans aged 65 and above or the disabled
RISK TO 2027 MARGIN TARGET
** J.P. Morgan ("neutral") says it would be an understatement to say margin targets of "at least 3%" for HUM's Medicare business in 2027 have a higher degree of difficulty now
** Mizuho ("outperform," PT: $410) says co is appealing the rating, and that rival UnitedHealth's UNH.N lawsuit, as per a report, provides hope that the process will be successful for HUM
** BofA ("underperform," PT: $247) estimates this would hurt revenues by 3.5% due to lost bonus payments and could almost eliminate 2026 earnings per share
** The loss of stars pushes recovery of margins further out in the future and could impact brand perception in the upcoming enrollment period — BofA
** UBS ("neutral," PT: $380) says if UnitedHealth UNH.N and CVS CVS.N maintain their plan ratings at roughly the same levels, this should be a significant tailwind for them to pick up members and improve margin
Reporting by Puyaan Singh
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