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Can Retail Segment Further Drive Humana's (HUM) Q3 Earnings?

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Humana Inc.(HUM - Free Report) will report third-quarter 2017 results on Nov 8, before the market opens.

The company has a decent surprise history. It pulled off positive surprises in all of the last four quarters with an average beat of 7.2%. Last quarter, the company delivered a positive earnings surprise of 7.84% on the back of strong performance by its Retail segment. Let’s see how things are shaping up for this announcement.

The company’s retail segment has been performing well over past many quarters driven by its Medicare and Medicaid expansion initiatives. We expect the trend to continue in the third quarter as well. However, the Zacks Consensus Estimate for the segment’s revenues is pegged at $11.2 billion that reflects a slight decrease of 1% year over year.

The company’s consistent growth in premium revenues has been largely driven by Medical membership growth. Humana has seen solid medical membership increase in its Individual Medicare Advantage and Group Medicare Advantage businesses. For the quarter, Zacks Consensus Estimate for the same is currently pegged at 14 million, up 48% year over year.

Other Factors

The standalone Prescription Drug Plans membership is likely to have grown, adding significantly to the Medicare business.

Nevertheless, Humana is expected to suffer from rising benefit expenses that keep putting pressure on margins.

Individual commercial membership is expected to remain a drag due to the rise in premiums along with benefit redesigns in place since the beginning of 2016. Along with other companies like Aetna Inc , Anthem Inc , UnitedHealth Group, Inc (UNH - Free Report) , Humana has also started scaling down this business and plans to exit it in 2018. This segment is expected to affect the company’s results in the third quarter as well.

Earnings Whispers

Our proven model does not conclusively show that Humana is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Humana has an Earnings ESP of -1.00%. This is because the Most Accurate estimate is pegged at $3.32 while the Zacks Consensus Estimate stands at $3.27. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Humana Inc. Price and EPS Surprise

Zacks Rank:Humana currently carries a Zacks Rank #3. Despite having a favorable Zacks Rank, the negative Earnings ESP makes the prediction inconclusive. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement. 

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