Buy UnitedHealth or Humana Stock as Medicare Advantage Rates Increase?

The Centers for Medicare & Medicaid Services (CMS) finalized a much larger-than-expected increase in Medicare Advantage payment rates for 2027, triggering a broad relief rally across health insurer stocks on Monday.

UnitedHealth Group UNH) and Humana’s HUM) stock led the way, spiking over 8% in today’s trading session, respectively.

Although both healthcare giants are known for their lucrative earnings potential and bring in over $100 billion in annual revenue, their stocks have plummeted in recent years due to rising costs.

This certainly makes it a worthy topic of whether it’s time to buy UnitedHealth or Humana stock for an extended rebound.

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Medicare Advantage Optimism

Notably, the CMS approved a 2.48% increase in Medicare Advantage reimbursements for 2027, far above the 0.09% increase initially proposed in January and above what analysts expected.

This decision effectively removes major regulatory fears that had weighed heavily on UnitedHealth, Humana, and the entire managed-care sector. The finalized rates translate to over $13 billion in additional Medicare Advantage payments flowing to insurers in 2027, and should noticeably improve their outlook.

As illustrated by UnitedHealth and Humana’s lackluster stock performance of late, investors had priced in a worst-case scenario for Medicare Advantage margins. However, the CMS’s decision reverses that narrative, giving insurers more breathing room on reimbursement rates and improving earnings visibility.

Tracking UnitedHealth & Humana’s Outlook

Based on Zacks estimates, UnitedHealth’s annual sales are currently expected to dip 1% in fiscal 2026 but are projected to rebound and rise 4% next year to $457.29 billion.

UnitedHealth’s annual earnings are expected to rise 8% this year and are projected to spike another 13% in FY27 to $19.95 per share. That said, this still represents a noticeable contraction from EPS of over $20.00 from FY22-FY24.

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As for Humana, annual sales are currently expected to increase 24% this year and are projected to rise another 6% in FY27 to $170.91 billion.

Although Humana’s top line expansion remains appealing, rising costs have been more apparent with FY26 EPS forecast at $9.70, which would be a 43% decrease from $17.14 per share last year.

Optimistically, Humana’s EPS is projected to rebound to $15.43 in FY27, although this would still be a noticeable contraction from FY25 and earnings of more than $20.00 per share from FY21-FY23.

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UnitedHealth & Humana’s Attractive Valuations

Along with what is now a more favorable Medicare Advantage outlook, what UnitedHealth and Humana stock have working in their favor is that they are trading at attractive valuations.

UnitedHealth especially stands out at a 15X forward earnings multiple, which is roughly on par with their Zacks Medical-HMOs Industry average. Humana stock, on the other hand, trades at 18X forward earnings but is still nicely beneath the benchmark S&P 500’s 22X.

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UNH and HUM also trade well under the often preferred level of less than 2X forward sales, as do most of their industry peers, with the S&P 500 at nearly 5X. Humana has the lower forward price-to-sales ratio at just 0.1X, with UnitedHealth at 0.5X.

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Bottom Line

UnitedHealth and Humana stock currently land a Zacks Rank #3 (Hold), but buy ratings could be on the way, considering EPS revisions are likely to rise for these healthcare giants with the CMS raising Medicare Advantage payment rates.

While Humana stock has the more affordable price tag, UnitedHealth’s valuation is just as intriguing and UNH offers a more enticing 3.14% annual dividend yield.

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UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report

Humana Inc. (HUM): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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