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Humana Inc. (HUM - Analyst Report) is set to report fourth-quarter 2013 results on Feb 5, 2014. Last quarter, it posted a 6.94% surprise. Let’s see how things are shaping up for this announcement.

Factors this Past Quarter

Although the launch of the “Humana Helps” campaign, the Accountable Care agreement with St. Luke’s University Health Network, and investments in the trend vendor initiatives like Humana Chronic Cares Program and in-home care for Humana members are expected to help the company enhance revenues, a number of negatives are likely to mar the overall results in the upcoming quarter.  Humana has been witnessing rising expenses on account of higher operating cost and depreciation and amortization costs. Moreover, an expected increase in medical costs in the Employer segment in 2014 is believed to mar company financials going forward.

Additionally, since Humana is heavily reliant on Medicare Advantage revenue the health care reform that has reduced the selling season for the Medicare Advantage plans are spelling bad news for the company. Also, ban on annual and lifetime coverage caps, annual fees on health insurance companies and excise tax on high premium insurance policies, will likely increase expenses pressurizing margins. Pricing pressure from competitors, particularly from BlueCross BlueShield and increased capital expenditures to settle lawsuits are likely to dampen the results further.

Earnings Whispers?

Our proven model shows that Humana will lag earnings this quarter. That is because the stock has a negative Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #4.

Negative Zacks ESP:  That is because the Most Accurate estimate stands at 89 cents whereas the Zacks Consensus Estimate stands at 93 cents, making the difference –4.30%.

Zacks Rank #4 (Sell): Humana’s Zacks Rank #4 decreases the predictive power of ESP. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum as is the case here.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Aetna Inc. (AET - Analyst Report), with Earnings ESP of +2.90% and Zacks Rank #3 (Hold).

HEALTHSOUTH Corp. (HLS - Snapshot Report), with Earnings ESP of +4.55% and Zacks Rank #3.

PharMerica Corporation (PMC - Snapshot Report), with Earnings ESP of +9.09% and Zacks Rank #3.

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