Humana or Privia: KeyBanc Selects the Superior Healthcare Service Stock to Buy

As we head into the final months of 2024, economic conditions appear to be improving. The rate of inflation has slowed down nearly to the Fed's target rate, and the healthcare sector is facing new opportunities and challenges. In this dynamic environment, two prominent healthcare companies—Humana and Privia Health Group—are drawing significant attention from analysts and investors alike. KeyBanc's recent analysis has highlighted one of these companies as a prime candidate for investment, sparking interest in the healthcare industry.

The Players: Humana and Privia Health Group

Humana

Humana is one of the largest health insurers in the United States, ranking as the fifth-largest insurer in the $14 trillion U.S. health insurance market. The company holds a 7.3% market share in its sector and boasts a significant market capitalization of $31 billion. Over the past year, Humana has generated a total revenue of $112 billion, placing it eighth among all U.S. insurance firms regardless of market specialization. The company offers medical, dental, and vision coverage for individuals and families within the private health insurance landscape in the U.S., as well as various plans under Medicaid depending on client eligibility. Additionally, Humana is recognized for its diverse Medicare Advantage plans, which include routine, vision, and hearing services for qualifying patients.

Despite facing challenges, Humana still achieved revenue growth in the second quarter of 2024. The company's revenue reached $29.54 billion, surpassing expectations by $1.1 billion and demonstrating over a 10% year-over-year increase. Non-GAAP earnings were $6.96 per share, exceeding forecasts by $1.09. Looking ahead to the third quarter, analysts estimate quarterly revenues of $28.65 billion, representing an 8.4% increase from the previous year.

KeyBanc's Analysis: Humana's Prospects

KeyBanc's analyst, Gillmor, conducted a thorough analysis of both Humana and Privia Health Group. He highlighted the positive aspects of Humana's stock but also noted the challenges it faces. One significant hurdle is the company's margin recovery, which is expected to be weighted towards 2027 due to changes in utilization during 2023-2024 and lower benchmark rates. However, Gillmor believes that efforts to improve plan exits and adjust thresholds will push meaningful margins into positive territory in the coming years. He estimates that normalized margins (~5%) could lead to a reasonable long-term stock price of around $600 at some point.

Gillmor's perspective is cautious, but he sees a long-term bull case for Humana. He assigns a Sector Weight Neutral rating to Humana shares and refrains from establishing a specific price target. The consensus among analysts aligns with KeyBanc's viewpoint, with a general recommendation for Humana stock to hold based on 21 assessments including 5 Buy ratings, 15 Hold, and 1 Sell. Currently, the stock trades at $258.07, and its average target price of $296.37 suggests a potential 15% increase within the next year.

Privia Health Group: The Other Contender

Privia Health Group Overview

Privia Health Group is a physician organization with a nationwide presence, leveraging technological capabilities to equip healthcare providers with the necessary tools and talent to deliver optimal patient care. The company aims to assist physicians in refining their practices to enhance patient experiences, ensuring high-quality care in both in-person and virtual settings. Privia collaborates directly with healthcare providers, who benefit from both independent operations and group membership advantages. This innovative approach merges the efficiencies of larger organizations with the personalized care of smaller physician groups.

Privia's Financial Performance

In its latest earnings report, Privia exceeded expectations in the second quarter of 2024. The company reported revenues of $422.3 million, marking a 2.2% increase from the same quarter last year and surpassing analysts' forecasts. Privia's bottom line reached 19 cents per share in non-GAAP terms, exceeding predictions by a penny. For the entire year of 2024, the consensus revenue forecast for Privia stands at $1.67 billion. The company is anticipated to report over $413 million in revenue for the third quarter next month, necessitating more than $430 million in the fourth quarter to meet the annual target. It’s worth noting that Privia generated over $440 million in the fourth quarter of 2023 and has been experiencing year-over-year revenue growth each quarter.

KeyBanc's Analysis: Privia's Prospects

Gillmor believes that Privia has promising prospects, particularly in addressing the eroding fee-for-service (FFS) economics and improving Medicare Advantage (MA) economics. He notes that Privia's platform improves FFS rates, reduces practice expenses, and creates incremental value-based care (VBC). Additionally, Gillmor highlights the significance of Privia's integrated electronic medical records (EMR) system in driving physician behavior change and enhancing visibility to improve VBC performance. He sees advantages in Privia's integration with payors and believes it could be a logical acquisition target under the right circumstances.

Conclusion

KeyBanc's analysis has provided a comprehensive comparison between two prominent healthcare service providers: Humana and Privia Health Group. While both companies present compelling cases, Humana's diversified revenue streams and significant market presence make it a more attractive investment opportunity according to KeyBanc. However, Privia's innovative approach to healthcare delivery and its potential for future growth cannot be overlooked.

As we navigate the final months of 2024, investors must carefully consider these factors to make informed decisions. With economic conditions improving and the healthcare sector facing new opportunities, now is the perfect time to explore these dynamic companies and their potential for long-term growth.

References

• TipRanks on X: "Humana or Privia: KeyBanc Selects the Superior Healthcare Service Stock to Buy" - https://twitter.com/TipRanks/status/1845766342156181736
• Yahoo Finance: "Humana or Privia: KeyBanc Selects the Superior Healthcare Service Stock to Buy" - https://finance.yahoo.com/news/humana-privia-keybanc-selects-superior-095736141.html
• CNBC: "PRVA: Privia Health Group Inc - Stock Price, Quote and News" - https://www.cnbc.com/quotes/PRVA
• Yahoo Finance: "Healthcare Stock Performance" - https://finance.yahoo.com/news/healthcare-stock-performance-2024-0921/
• FINVIZ: "HUM - Humana Inc. Stock Price and Quote" - https://finviz.com/quote.ashx?tHUM