Perhaps one of the more perplexing investments to decipher is insurance company Humana (NYSE:HUM). On the optimistic end of the spectrum, HUM stock benefits from a necessary service. That’s especially the case with a health-related crisis such as the novel coronavirus pandemic. However, because we’re facing unprecedented economic turmoil, the idea that Americans will continue paying expensive health insurance costs is difficult to swallow.
In the technical charts as well, HUM stock has a two-faced nature. At the onset of the crisis, shares plummeted rapidly following a series of wild trading. But from its March bottom, Humana has skyrocketed. On a year-to-date basis, HUM stock is in the green, albeit barely. With such wild gyrations, though, many investors don’t have the appetite for it.
Still, on a fundamental basis, Humana offers many positives. For instance, in its first quarter of 2020 earnings report, the company beat analysts’ consensus profit estimate. Further, sales at its retail unit increased nearly 20% to $16.76 billion. Humana added 404,800 members, bringing its total tally to 3.8 million. Significantly, management stuck to its full-year forecast, which has understandably been a rarity these days.
What the earnings report demonstrated was that even in tough times, American families will find ways to get the coverage they need. Moreover, the coronavirus caused a deferral of elective procedures as the national healthcare infrastructure focused on the outbreak. Furthermore, those seeking primary care for non-Covid-19 related reasons stayed at home, which doesn’t necessary help HUM stock.
Finally, the nationwide shutdowns have curtailed incidents like traffic accidents, which would lead to medical care. Once the economy goes back online, though, we’ll see an increase in healthcare demand.
A Flurry of Challenges Awaits HUM Stock
Analysts have suggested the pent-up demand theory not just for healthcare but for multiple other industries. Combined with Humana’s relatively strong earnings report, it’s easy to see why HUM stock has so far outpaced rivals such as Cigna (NYSE:CI) and Anthem (NYSE:ANTM). But I’m not entirely sure if that’s enough to drive interest in this difficult period.
For one thing, the economy is a disaster. According to the latest jobs report from the Bureau of Labor Statistics, we lost 20.5 million employment opportunities in April. Sadly, this translates to a 14.7% unemployment rate, which really is a Great Depression-era statistic. Furthermore, we nuked nearly all the job gains made following the Great Recession.
That leaves many American households on the edge. Frankly, I believe — and I’m not the only one by a long shot — that government data has so far understated the pain. When you have record lines at food banks overwhelming charitable networks, you know that this is a once-in-a-century event.
Therefore, many stressed households are already over the edge. In that case, paying for premium health coverage when government-backed programs are available simply doesn’t make sense. It’s also fair to note that while Humana showed resilience for its Q1 report, we really hadn’t yet hit an expected wall with the coronavirus at that point. And there could be more problems ahead, which clouds the bullish case for HUM stock.
Not to pour salt on open wounds but historical trends aren’t exactly favorable for the for-profit health insurance industry. In the aftermath of the tech bubble collapsing and especially the 2008 global market crash, the insurance coverage rate dropped significantly.
In other words, members will hold on up to a certain threshold. But in a financial crisis, they will jettison whatever they have to, including their medical coverage.
No One Knows What the New Normal Will Look Like
Another factor to consider for HUM stock is the impact of the new normal. As you know, one of the hottest assets on Wall Street is Teladoc Health (NYSE:TDOC). With its medical advice from afar platform, patients can get the consultation they need without having to physically go to a clinic.
In a normal situation, this saves time for everyone involved. But during a pandemic, “telehealth” has been the only reasonable way to receive medical service for non-emergencies. Because the painful memories of the coronavirus will linger for years, if not forever, the telehealth industry will likely surge.
If Humana plays its cards right, it could benefit from this paradigm shift. But that’s also a big “if.”
The last thing I’ll say is that we don’t know when most Americans will feel comfortable returning to hospitals and clinics for elective procedures. Recent surveys demonstrate that most Americans are still afraid to go grocery shopping. I’m sure this same sentiment applies for non-coronavirus-related medical care. Ultimately, the smart play is to wait on HUM stock until we have a better idea of what society will look like.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.