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Why Is Humana (HUM) Down 1.9% Since Last Earnings Report?
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A month has gone by since the last earnings report for Humana (HUM - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Humana due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Humana's first-quarter 2021 operating earnings per share of $7.67 surpassed the Zacks Consensus Estimate by 6.4%. This was on the back of better revenues and a solid contribution by its Retail segment. The bottom line also surged 42% year over year.
Operational Update
Revenues of $20.6 billion were up 9.2% year over year owing to individual Medicare Advantage and state-based contracts membership growth, higher per member individual Medicare Advantage premiums and the impact of Medicare sequestration relief. However, the top line missed the Zacks Consensus Estimate by 0.3%. Benefit ratio expanded 80 basis points (bps) to 85.9%. Operating cost ratio contracted 160 bps to 9.7%. Total expenses shot up 8.9% year over year due to higher benefits, and depreciation and amortization costs.
Segmental Results
Retail
Revenues from the Retail segment were $18.65 billion, up 11% year over year. This can primarily be attributed to premium rise owing to Medicare Advantage along with state-based contracts membership growth and higher per member Medicare Advantage premiums. The impact of Medicare sequestration relief in the first quarter also contributed to the same. Benefit ratio of 87.7% expanded 110 bps year over year due to the termination of the non-deductible HIF in 2021 along with the impact related to the competitive nature of the group Medicare Advantage business. The segment’s operating cost ratio of 7.8% contracted 140 bps year over year on the back of termination of the non-deductible HIF in 2021, scale efficiencies related to growth in individual Medicare Advantage membership and the operating cost efficiencies in the first quarter.
Group and Specialty
Revenues from the Group and Specialty segment were $1.74 billion, down 7% from the prior-year quarter due to reduction in fully-insured group commercial membership. Benefit ratio contracted 440 bps year over year to 74.7% on the back of higher favorable Prior Period Development in the first quarter of 2021 along with deliberate pricing and benefit design efforts to enhance profitability and position the commercial business for long-term success. Operating cost ratio contracted 20 bps year over year to 22.9%.
Healthcare Services
Revenues of $7.2 billion increased 2% year over year, primarily owing to Medicare Advantage membership growth and additional pharmacy revenues associated with the Enclara Healthcare buyout. Higher revenues related to provider business also aid growth. Operating cost ratio was flat year over year at 96%. This was owing to operational improvements in the company’s provider services business, mainly related to Conviva along with operating cost efficiencies, driven by previously implemented productivity measures in the first quarter.
Financial Update (as of Mar 31, 2021)
The company had cash and cash equivalents, and investment securities of $18.25 billion, down 1% from the level at 2020 end. Debt-to-total capitalization was 33.9%, expanding 120 bps from the level as of Dec 31, 2020. Cash flows used in operating activities came in at $837 million, comparing unfavorably with the year-ago quarter’s cash flow provided by operations of $474 million.
Capital Deployment
In December, Humana inked two separate deals with two third-party financial institutions to effect an aggregate $1.75-billion ASR program under its authorization. In the first quarter, the company didn’t buy back any shares. In February, its board of directors approved a share buyback plan of $3 billion with the expiration date of Feb 18, 2024. It paid out cash dividends worth $83 million in the first quarter.
2021 Guidance
After announcing first-quarter results, the company reaffirmed its 2021 guidance. Adjusted EPS is still expected in the range of $21.25-$21.75. For the full year, the company still expects individual Medicare Advantage membership growth of around 425,000-475,000 members.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -6.97% due to these changes.
VGM Scores
At this time, Humana has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Humana has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Humana (HUM) Down 1.9% Since Last Earnings Report?
A month has gone by since the last earnings report for Humana (HUM - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Humana due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Humana's Q1 Earnings Surpass Estimates, Improve Y/Y
Humana's first-quarter 2021 operating earnings per share of $7.67 surpassed the Zacks Consensus Estimate by 6.4%. This was on the back of better revenues and a solid contribution by its Retail segment. The bottom line also surged 42% year over year.
Operational Update
Revenues of $20.6 billion were up 9.2% year over year owing to individual Medicare Advantage and state-based contracts membership growth, higher per member individual Medicare Advantage premiums and the impact of Medicare sequestration relief. However, the top line missed the Zacks Consensus Estimate by 0.3%. Benefit ratio expanded 80 basis points (bps) to 85.9%. Operating cost ratio contracted 160 bps to 9.7%. Total expenses shot up 8.9% year over year due to higher benefits, and depreciation and amortization costs.
Segmental Results
Retail
Revenues from the Retail segment were $18.65 billion, up 11% year over year. This can primarily be attributed to premium rise owing to Medicare Advantage along with state-based contracts membership growth and higher per member Medicare Advantage premiums. The impact of Medicare sequestration relief in the first quarter also contributed to the same. Benefit ratio of 87.7% expanded 110 bps year over year due to the termination of the non-deductible HIF in 2021 along with the impact related to the competitive nature of the group Medicare Advantage business.
The segment’s operating cost ratio of 7.8% contracted 140 bps year over year on the back of termination of the non-deductible HIF in 2021, scale efficiencies related to growth in individual Medicare Advantage membership and the operating cost efficiencies in the first quarter.
Group and Specialty
Revenues from the Group and Specialty segment were $1.74 billion, down 7% from the prior-year quarter due to reduction in fully-insured group commercial membership. Benefit ratio contracted 440 bps year over year to 74.7% on the back of higher favorable Prior Period Development in the first quarter of 2021 along with deliberate pricing and benefit design efforts to enhance profitability and position the commercial business for long-term success. Operating cost ratio contracted 20 bps year over year to 22.9%.
Healthcare Services
Revenues of $7.2 billion increased 2% year over year, primarily owing to Medicare Advantage membership growth and additional pharmacy revenues associated with the Enclara Healthcare buyout. Higher revenues related to provider business also aid growth. Operating cost ratio was flat year over year at 96%. This was owing to operational improvements in the company’s provider services business, mainly related to Conviva along with operating cost efficiencies, driven by previously implemented productivity measures in the first quarter.
Financial Update (as of Mar 31, 2021)
The company had cash and cash equivalents, and investment securities of $18.25 billion, down 1% from the level at 2020 end. Debt-to-total capitalization was 33.9%, expanding 120 bps from the level as of Dec 31, 2020. Cash flows used in operating activities came in at $837 million, comparing unfavorably with the year-ago quarter’s cash flow provided by operations of $474 million.
Capital Deployment
In December, Humana inked two separate deals with two third-party financial institutions to effect an aggregate $1.75-billion ASR program under its authorization. In the first quarter, the company didn’t buy back any shares. In February, its board of directors approved a share buyback plan of $3 billion with the expiration date of Feb 18, 2024. It paid out cash dividends worth $83 million in the first quarter.
2021 Guidance
After announcing first-quarter results, the company reaffirmed its 2021 guidance. Adjusted EPS is still expected in the range of $21.25-$21.75. For the full year, the company still expects individual Medicare Advantage membership growth of around 425,000-475,000 members.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -6.97% due to these changes.
VGM Scores
At this time, Humana has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Humana has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.