First some information on the past Q and some company guidance…
• Humana has completed major acquisitions in the past quarter. Metcare Health Plans, Inc in August, PHP Companies in October and Cariten Healthcare in November. These acquisition included in co's estimate of FY09 EPS of $5.90-6.10. This estimate is above street consensus.
• It missed EPS estimates by .40 a share and guides Q4 EPS below consensus. However as mentioned earlier FY09 EPS is above consensus.
Information regarding political and economical events…
• More intense competitive pressure along with a slumping US economy and challenging credit markets will cause significant strain and consolidation in the industry
• Democratic party reform may hit may hurt programs flourishing under Bush administration. Only time will tell.
However we still believe the company belongs in our portfolio because
• Humana has strong capital and liquidity with its $1 billion in revolving credit still available
• Growth in Commercial Specialty products
• The federal government announced regulatory changes to combat skyrocketing premiums for Humana’s Medicare Advantage plans. A significant advantage because Medicare has been seen as one of the companies most challenging prospects.
Finally, We believe that the baby-boomer population will continue to make this a successful pick in the long term and that the fundamental operations of the business have not changed enough to break the thesis and sell the stock.