On October 9, Humana Inc. (NYSE:HUM) gained more than 11% after analysts named it the biggest potential beneficiary of the new Medicare Advantage star ratings for 2027. Earlier this year, the stock also ranked 5th on our list of the 7 Best Turnaround Stocks to Buy in 2026. See which four stocks ranked higher than Humana Inc. and why.
The health insurer said 95% of its Medicare Advantage members would be enrolled in plans rated four stars or higher in 2027, up from just 20% in 2026. The result also exceeded J.P. Morgan’s expectations of 60% to 70%.
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Higher ratings from the US health department can help insurers qualify for government bonus payments. This makes the improvement a potential boost to Humana’s future revenue and profitability. Evercore ISI analyst Elizabeth Anderson noted that the improved ratings could help the company receive $4.8 billion in bonus payments in 2028. However, Baird analysts said that the improvement in profitability will depend on reinvestment in member benefits and arrangements with healthcare providers.
Humana’s improved ratings could also give it a competitive advantage over larger rivals. J.P. Morgan estimates that the share of UnitedHealth Group Incorporated’s (NYSE:UNH) enrollments in plans rated four stars or higher will fall from 81% to about 67%, while CVS Health Corporation’s (NYSE:CVS) share is expected to fall from from 84% to roughly 70%. The stronger ratings could help Humana attract and retain members as competitors face weaker results.
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The improvement marks a turnaround after the company’s 2025 ratings declined sharply, putting its bonus payments at risk. Humana also lost a lawsuit challenging the calculation of its 2025 ratings in October last year and forecast 2026 profit below Wall Street expectations in February.
Anderson attributed the latest improvement to better performance in measures related to drug-plan quality, health-plan quality, and readmissions.
Some Risks Remain
Despite the positive ratings news, Humana still faces headwinds in achieving sustainable growth in profitability. The company lowered its minimum 2026 GAAP EPS guidance from $8.36 to $6.52, while maintaining its adjusted EPS outlook of at least $9.
Another concern is whether bonus payments will keep pace with rising healthcare costs. If government payments fall short of medical-cost inflation, the company could face further pressure on margins and may need to reduce benefits, raise premiums where possible, or withdraw from less-profitable markets. These risks could limit the financial gains from improved star ratings.
What the Numbers Say
Hedge fund interest in the stock increased during the second quarter. According to Insider Monkey’s database, 74 hedge funds held HUM at the end of the second quarter, up from 61 in the first quarter.
As of September 15, short interest stood at 2.69% of the company’s float, indicating that bearish positioning in the stock remains low.
Humana trades at a trailing price-to-earnings ratio of 35.42 and a forward P/E ratio of 24.33. Although the forward multiple is lower than the trailing multiple, the valuation still depends on the company delivering an earnings recovery. While the improved star ratings could support future bonus payments and strengthen Humana’s competitive position, persistent medical-cost pressures or weaker-than-expected financial benefits could undermine that recovery. The stock’s improved ratings strengthen its turnaround case, but whether its valuation is justified will depend on how much of the expected bonus revenue translates into sustainable earnings growth.
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