Humana provides a peak into its Medicare Advantage plan ratings, and the stock jumps

Humana Inc. shares climbed 4% after the company disclosed improved 2026 Medicare Advantage Star Ratings, which were inadvertently made public by CMS. The percentage of members in 4.5-star plans is projected to jump from 3% in 2025 to 14% in 2026, with further enhancements anticipated for 2027, a critical factor as higher ratings directly correlate to increased government rebates and profitability. This positive outlook for its core MA business, following a significant multi-year stock decline, suggests a potential turnaround, further supported by Humana's affirmation of its 2025 adjusted EPS outlook at $17.

Analysis

Humana's stock experienced a significant 4% intraday rally following the company's disclosure of an early look at its 2026 Medicare Advantage (MA) Star Ratings, which were inadvertently released by the Centers for Medicare and Medicaid Services. This development provides a tangible data point suggesting a potential turnaround in its core MA business, which has been a major source of investor concern. The key metric driving optimism is the projected increase in members enrolled in 4.5-star plans, which is set to jump from 3% in 2025 to 14% in 2026. As higher ratings directly correlate to increased government rebates, this shift points to improved profitability. While the overall percentage of members in 4-star-and-above plans remains flat at approximately 20%, the company anticipates a "meaningfully higher" percentage for the 2027 payment year, signaling a sustained positive trajectory. The positive ratings news is further bolstered by Humana's affirmation of its 2025 adjusted EPS guidance of $17, aligning with analyst consensus and suggesting operational stability. Despite this rally pushing the stock into positive territory year-to-date, it follows a catastrophic 50.5% decline from 2023-2024 and still lags the Health Care Select Sector SPDR ETF and the S&P 500.

Key Decisions for Investors

• Investors should view the improved 2026 Star Ratings as a key positive catalyst and a concrete sign that the operational turnaround in the core Medicare Advantage business may be gaining traction.
• Monitor for the final, official CMS ratings release and further details on the drivers behind the expected "meaningfully higher" ratings for the 2027 payment year, as this will be critical to validating the long-term margin recovery story.
• Given the stock's significant historical underperformance, consider whether the current valuation fully reflects this positive ratings development, while also weighing the risk that overall 4-star+ enrollment remains flat for now.
• Use the affirmed 2025 adjusted EPS guidance of $17 as a solid anchor for near-term valuation models ahead of the company's third-quarter results on November 5.