Humana Inc. (HUM) is one of the largest publicly traded health benefit companies in the U.S. and Puerto Rico. The company reported 3Q08 net income of $183M (down 39.5% y/y), or EPS of $1.09, compared with net income and EPS of $302.4M and $1.78 respectively in 3Q07. Adjusted EPS, excluding realized losses associated with other-than-temporary investment impairments and sales of distressed financial institution securities during 3Q08, was $1.48.

We have adjusted our price target following management's lowered FY08 EPS guidance and maintain a Buy recommendation at current levels. We have valued Humana on a forward price/earnings (P/E) basis, as well as a comparison to similar firms in the managed care sector. Our $47 price target is derived using a P/E multiple of 11 times (x) FY08 EPS of $4.25.

Restructuring initiatives and increased use of technology have streamlined operations and improved operational efficiencies over recent years. TRICARE recently issued a formal request for proposal to managed care plans to provide benefits beginning April 1, 2010, which augurs well for Humana's military service related businesses.