Has the Humana (HUM) Stock Run Come to an End?

Humana's (HUM) OBV line goes below where it was before the price spike, suggesting significant liquidation.
By Bruce Kamich ,

NEW YORK (TheStreet) -- Humana (HUM) - Get Report has had a terrific run in recent years, but is this chapter coming to an end?

It is hard not to notice the price action in May and June. HUM had a $50 spike to the upside, followed by an erosion over a number of weeks back to the starting point. More interesting is the action in the On-Balance-Volume (OBV) line, which goes below where it was before the price spike, suggesting significant liquidation.

For 2013, 2014 and into 2015, we can see a smooth uptrend in HUM, above, and dips toward the rising 40-week moving average were great buying opportunities. The OBV line trends upward, confirming the rally, but that changes in June.

The OBV line turns down quickly, as it does in the daily chart. The Moving Average Convergence Divergence (MACD) oscillator crosses and quickly turns down. Prices of HUM are now below the 40-week average.

Investors should take note of two chart points that will probably weaken the picture going forward -- a break below $174 and then a close below $162.

TheStreet Ratings team rates HUMANA INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

We rate HUMANA INC (HUM) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Health Care Providers & Services industry average. The net income increased by 8.3% when compared to the same quarter one year prior, going from $290.00 million to $314.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.1%. Since the same quarter one year prior, revenues slightly increased by 9.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.29, which illustrates the ability to avoid short-term cash problems.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 26.71% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: HUM

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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