The Zacks Analyst Blog Highlights: Humana, AT&T, Verizon Communications, Apple and Sprint

Jul 22, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, July 22, 2013 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Humana Inc. (NYSE: HUM-Free Report), AT&T, Inc. (NYSE: T-Free Report), Verizon Communications Inc. (NYSE: VZ-Free Report), Apple Inc. (Nasdaq: AAPL-Free Report) and Sprint Corporation (NYSE: S-Free Report).


Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday's Analyst Blog:

Humana Raised to Outperform

On Jul 18, 2013, we raised Humana Inc. (NYSE: HUM-Free Report) to Outperform based on the company's strong financial position, membership growth in Medicare, stable ratings, and rapid expansion through acquisitions.

Why the Upgrade?

Humana has a strong history of outperforming earnings estimates. The company reported 4 straight quarters of positive earnings surprise with an average beat of 21.21%.

Humana has also maintained a strong cash and short-term investment position over the past several years. The strong cash position enabled the company to increase its quarterly dividend by 3.85% and replace its old share repurchase authorization with a new repurchase authorization worth $1 billion in Apr 2013.

Further, Humana's Medicare business, which contributed 74% to the premium and service revenues in the first quarter of 2013, has been witnessing rising membership. The company has developed various commercial products to expand its business platform over the last several years.

Moreover, with the acquisitions of Arcadian, SeniorBridge, Concentra and MD Care, Humana has increased its focus on its core business as a health care provider, expanded its Medicare coverage, enhanced the quality of its healthcare services, expanded its provider network in various regions and reduced its exposure to health care overhaul regulations.

These positives offset Humana's dependence on Medicare Advantage plans, rising expenses, the adverse impact of healthcare reforms and high competition.

Verizon Offers Upgrade on Installment

Following AT&T, Inc. (NYSE: T-Free Report), Verizon Communications Inc. (NYSE: VZ-Free Report) is also bent on providing early upgrades to customers, however with a different strategy. The company is offering frequent upgrade of devices for customers willing to pay the purchase price in installments.

With no change in the company's service pricing, we believe the new strategy would imply added expenditures for customers, while the company will gain from zero subsidies on phone upgrades by offering the part payment facility. The company is spending hugely to subsidize the handsets, which largely remains a drag on its profits.

The Street estimates that the new policy in phone upgrades will not have much of an impact as very few subscribers would go for early upgrades without any subsidies on devices. However, given the smartphone frenzy in the market, we believe customers will be carried away by the "in thing", which makes premium handsets like Apple Inc. (Nasdaq: AAPL-Free Report) iPhones a big hit of it times despite cheaper alternatives in the market.

Catching on this smartphone fever, we believe Verizon and its peers are likely to make up for the losses they bear on equipment subsidies initially by introducing new plans on selling devices. A few days ago, AT&T also announced of a similar move, which entailed early upgrades to smartphones and tablets every year without paying extra on down payment, activation fee, upgrade or financing fee.

While AT&T and Verizon are focusing on smartphone upgrades, another major wireless provider Sprint Corporation (NYSE: S-Free Report) announced the launch of unlimited plans for voice, text and data services. The service, known as Sprint Unlimited Guarantee, would offer unlimited data for $30 a month on smartphones and $10 per month on other phones.

We believe the upcoming plans and policies to attract more customers will ultimately generate meaningful gains for these carriers. Coming back to Verizon, the company in posted a substantial year-over-year gain in earnings. Further, revenues were also higher thanks to the success of the strategies it has adopted to date. Its investments for enhancing wireless operations, expanding global networks, improving FiOS services and tapping growth opportunities in broadband, video and cloud activities also bode well for its profitability and we expect the new initiative of phone upgrade to also reap benefits for the company.

Verizon currently has a Zacks Rank #3 (Hold).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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