Humana Shares Tumble to 2-Year Low
Shares of Humana plunged to a two-year low Wednesday after the Louisville, Ky., company became the second health insurer to lower its profit forecast this week.
The stock dropped $13.50, or 28.5%, to $33.88, after reaching a low of $33.45. Shares last traded around those levels in May 2005. Trading exceeded their full day average volume in the first minute of Wednesday's session, and nearly 16 million shares had changed hands by 10:15 a.m.
The plunge followed a 24.4% fall Tuesday, after rival WellPoint Inc. slashed its 2008 profit forecast, blaming higher medical costs, lower-than-expected enrollment of insured patients and U.S. economic weakness.
Citi Investment Research analyst Charles Boorady noted that Humana cited a different reason than WellPoint for its forecast cut, meaning it might face problems with medical costs later on.
"One might question whether another shoe is about to drop if Humana does eventually find cost trend issues in those medical products later this year," he said.
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The good news for other
The good news for other health services companies is that both Humana and Aetna issued statements in the past two days which seem to support the fact that they are not anticipating medical cost issues the same way Well Point is. Humana seems to have seized upon an opportunity to announce the bad news of their poor planning hoping that, having been hit hard by the Well Point news the day before, their stock was already pricing in a step back in 2008. Unfortunately, the market reacted even more strongly to Humana's confirmation and dumped it for another 13% loss at the end of the day. There's no technical reason to look at Humana at this point as it seems to have no price support, but for those interested in a potential bounce back stock. This one could be interesting on a one to two year horizon as the primary growth trend in enrollment and revenue continues to outpace most of the industry and management seems to believe that excess expenses in 2008 are the result of an anomaly in their yearly prescription pricing strategy. I do have vested interest in both stocks mentioned in this comment, but I will likely be dumping Humana after its price stabilizes (hopefully).