Raymond James reiterates Outperform rating on Humana stock after strong Q2

Humana (NYSE:HUM) reported robust second-quarter 2025 results, with adjusted EPS of $6.27 and revenue of $32.39 billion both exceeding Street expectations. The company also raised its 2025 EPS guidance to $17.00, despite including $100 million in strategic investments aimed at improving Stars ratings and back-office technology. Raymond James reiterated its Outperform rating, viewing these investments as critical for driving long-term value and positioning Humana as an inexpensive investment in Medicare Advantage recovery, trading at approximately 6x its 2028 estimated EPS.

Analysis

Humana delivered a robust second-quarter 2025 performance, with adjusted earnings per share of $6.27 and revenue of $32.39 billion both surpassing consensus estimates. A key indicator of underlying operational strength is the company's decision to raise its full-year 2025 EPS guidance by $1.00 to $17.00, a move made despite incorporating $100 million in new strategic investments. This spending is directed at improving its CMS Stars ratings and back-office technology, which Raymond James views as a crucial step toward recapturing an estimated $2.2 billion in future program revenue and driving long-term efficiencies. The company's medical loss ratio of 89.9% was in line with expectations, indicating stable cost management. Reinforcing this positive outlook, Raymond James reiterated its Outperform rating and $340 price target, highlighting Humana's discounted valuation relative to peers like UnitedHealth, trading at approximately 6x estimated 2028 earnings compared to UNH's 10x.

Key Decisions for Investors

• Investors should consider Humana's current valuation, which at approximately 6x estimated 2028 P/E, presents a significant discount to its peer UnitedHealth and may represent an attractive entry point for exposure to the Medicare Advantage recovery.
• It is prudent to view the $100 million in incremental spending not as a drag on current earnings, but as a strategic long-term investment aimed at recapturing significant Stars program revenue and improving operational efficiency.
• Monitor future quarterly reports for evidence that these technology and Stars rating investments are beginning to yield results, specifically through improvements in operational metrics and progress toward the projected revenue recapture.