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Investing.com - Humana (NYSE:HUM) has lost its lawsuit against the Centers for Medicare & Medicaid Services (CMS) regarding its 2025 STAR ratings, according to Raymond (NSE:RYMD) James, which maintained its Outperform rating and $340 price target on the stock.
The lawsuit centered around approximately 70% of Humana’s members dropping below the 4-Star threshold, which will result in an estimated $15 EPS headwind in 2026 due to lost bonus payments. For context, Humana’s current diluted EPS stands at $14.16, with analysts forecasting $16.36 for FY2025. Four large plans dropped to 3.5 stars, with the H5216 plan—representing about 45% of Humana’s Medicare Advantage membership—falling from 4.5 stars to 3.5 stars.
Raymond James suggests this outcome was largely anticipated by the market, describing it as a "clearing event" that could initially push the stock down 0-5% but potentially allow for a rally in coming weeks. The firm notes that many investors had remained on the sidelines awaiting this decision.
The research firm emphasized that STAR ratings are reassessed annually, with 2026 ratings scheduled for release in October this year. Raymond James calculates that every 10% recovery in STAR ratings would translate to approximately $2.60 in EPS for Humana.
In its downside case analysis, Raymond James models approximately $26 EPS for 2028, assuming no improvement in STAR ratings, which would put the stock at roughly 8x earnings at current trading levels. The firm views this as a one-time headwind likely to reverse over the next few years.
In other recent news, Humana announced its Medicaid plan, Humana Healthy Horizons, is now available for Virginia Cardinal Care beneficiaries, expanding its presence in the state. The company will invest an additional $2 million in the Virginia Health Care Foundation over five years, following an initial $500,000 investment. Humana’s commitment to Virginia includes addressing physical and mental health needs as well as health-related social needs. Meanwhile, Humana faced a legal setback as a judge dismissed its lawsuit against the Centers for Medicare & Medicaid Services, though Barclays (LON:BARC) noted this outcome had been anticipated in Humana’s earnings targets. Barclays maintained its Equalweight rating on Humana with a price target of $268. Additionally, Raymond James raised its price target on Humana to $340, maintaining an Outperform rating, citing potential EPS growth through 2028. On the environmental front, Humana expanded its climate goals to include reducing emissions from its investment portfolio by 2029. Lastly, Humana joined other major insurers in pledging to simplify prior authorization processes, aiming to reduce administrative burdens in healthcare.
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