Humana Lowers EPS Outlook

On Monday, Humana Inc. ( HUM - Analyst Report ) reduced its earnings per share (EPS) guidance for 2012 to $7.38–$7.58 from its earlier forecast of $7.55–$7.75. The downward revision resulted from a $45 million litigation expense incurred by the company’s military division – Humana Military Healthcare Services Inc.

Humana will incur the settlement charge in the second quarter of 2012. Consequently, the company also revised its second-quarter EPS guidance to $1.98–$2.08 from the previous guidance of $2.15–$2.25.

In 2008, Sacred Heart Health System Inc. and some other operators filed a lawsuit against Humana Military in a U.S. District Court in Florida, accusing the company of providing lower reimbursement rates than the contracted amount to some healthcare providers, thereby breaching its network agreements.

While the downward revision of EPS guidance by 17 cents per share looks to weigh on the investors’ sentiment, Humana’s financial position will not be seriously damaged as the company has adequate cash to pay the settlement charge. Humana had cash and cash equivalents of $3.66 billion, as of March 31, 2012.

The Zacks Consensus Estimate for Humana’s second-quarter 2012 earnings is currently $2.28 per share, down 8.8% from the year-ago quarter. For full-year 2012, the Zacks Consensus Estimate stands at $7.85 per share, up 0.4% from 2011.

Humana Inc. is one of the largest health care plan providers in the U.S. and competes with other industry heavyweights like WellPoint Inc. ( WLP - Analyst Report ) and Aetna Inc. ( AET - Analyst Report ) . Currently, the company carries a Zacks #3 Rank (short-term Hold rating). We also maintain a long-term ‘Neutral’ recommendation on the stock.