Sector Snap: Humana, HealthSpring Shares Climb

INDIANAPOLIS (AP) — Shares of health insurers Humana Inc. and HealthSpring Inc. climbed briskly Wednesday after a BMO Capital analyst upgraded their shares.

BMO Capital analyst Dave Shove said in a research note he upgraded both companies to "Market Perform" from "Underperform" due to "dramatically lowered" expectations by investors for Medicare Advantage earnings power and valuation.

Both Louisville, Ky.-based Humana and Nashville, Tenn.-based HealthSpring draw relatively big portions of their business from Medicare Advantage plans, the privately run portion of the government health program for seniors. Their stocks had taken a beating recently after preliminary Medicare Advantage reimbursement rates were announced, and President Obama's proposed budget called for smaller payments for the plans.

In fact, Shove downgraded both companies on Feb. 23 and noted their exposure to Medicare Advantage. But now he sees more limited downside.

"In our view, the investor outlook on Medicare Advantage growth and profitability has been appropriately reined in, leaving the stocks fairly valued," he wrote in a Wednesday research note.

But Shove added that he still favors companies like Aetna Inc. and UnitedHealth Group Inc. that have large commercial, employer-based businesses.

Earlier this month, HealthSpring shares slid to $6.82, their lowest price since they started trading in February 2006.

On Wednesday, HealthSpring shares were up 10 percent, or 74 cents, to $7.97. Humana shares rose 8 percent, or $2.05, to $27.03 Wednesday afternoon.