Chart of the Day – (HUM) Dinger

by Dan February 7, 2017 2:25 pm • Chart of the Day

Humana (HUM) will report Q4 results tomorrow before the open, the options market is implying about a 4% one day move, which is rich to its 4 quarter one day post earnings move of 1.25% but inline with its 10 year one day post earnings average.

After the surprise results of the presidential election in November, managed care stocks like HUM were immediately viewed as beneficiaries of the president-elect’s campaign promise to repeal The Affordable Care Act.

Shares of HUM rocketed 30% from its Nov 8th close to its 52 week high on Dec 2nd, but has since given back nearly half of those gains:

HUM 1yr chart from Bloomberg

Taking a slightly longer term view, the Dec high might signal an epic double top in the shares, that given the recent commentary about the potential for the ACA not to be replaced until sometime late next year, we could see these stocks make lower lows. In the case of HUM, a move back to $180, which is also the uptrend from the 2013 lows could be in the cards:

HUM 5yr chart from Bloomberg

Some of HUM’s recent weakness is likely also associated to its dimmed prospects in December for its acquisition by Aetna (AET). That merger was blocked by a Federal judge, agreeing with the justice department about anti-trust issues. Aetna has until February 15th to appeal that decision. It’s unclear whether they will appeal or even if they’d find sympathetic ears in the new administration. But it’s now common knowledge that Aetna pulled out of some ACA exchanges as payback for the previous administration blocking the deal, and that was mentioned in the federal judge’s ruling. I’m not sure if a new administration would want to side publicly with the merger after that news broke, nor if Aetna would want to re-litigate that ugly episode in the court of public opinion.

I suspect $180 to $220 is the range for the time being.