Humana's (HUM) loss of leading position in Medicare Advantage star ratings is likely to delay margin recovery and create a revenue headwind of over 3.5% to Medicare, BofA Securities said in a note Thursday.
The company had disclosed that the number of members enrolled for 2025 in its Medicare Advantage Plans rated four stars or higher fell to 25% from 94% in 2024.
"While the loss of stars does not directly impact 2024-2025 results, it pushes the recovery of margins further out and could impact how seniors and brokers perceive the brand in the upcoming open enrollment," BofA said in the note. The company plans to regain its ratings with a pending appeal that may be resolved by next Thursday, but full recovery could take longer than expected, it added.
BofA lowered its 2026 earnings per share estimate to $13 per share from $25, assuming Humana can offset about half the impact through capitation and benefit cuts, the note said.
"The timing of the recovery is far from guaranteed, particularly if the election results in a win for Democrats and [Medicare Advantage] plans are pressured as they are demonstrating here with lower stars," BofA said.
BofA downgraded the company to underperform from neutral and lowered its price objective to $247 from $376.
Shares of Humana were down 2.8% in recent trading.
Price: 239.52, Change: -6.97, Percent Change: -2.83
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