It has been about a month since the last earnings report for Humana (HUM Quick QuoteHUM - Free Report) . Shares have lost about 7.1% 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 catalysts.

Humana's Earnings Beat Estimates in Q3, Surge Y/Y

Humana third-quarter 2021 operating earnings per share of $4.83 surpassed the Zacks Consensus Estimate by 4.8%. This was on the back of better revenues and a solid contribution from its Retail and Healthcare Services segments. The bottom line, however, improved 56.8% year over year.

Operational Update

Revenues of $20.6 billion were up 3.1% year over year owing to individual Medicare Advantage and state-based contracts membership growth plus higher per member individual Medicare Advantage premiums and the effect of Kindred at Home revenues from external customers. The top line missed the Zacks Consensus Estimate by 0.9%

Benefit ratio expanded 450 basis points (bps) to 87.1%.

Operating cost ratio contracted 100 bps to 12.2%.

Total expenses shot up 10% year over year on higher benefits, operating costs, and depreciation and amortization costs

Segmental Results

Retail

Revenues of $18.44 billion were up 10% year over year. This can primarily be attributed to a premium rise owing to individual Medicare Advantage along with state-based contracts membership growth and higher per member Medicare Advantage premiums.

Benefit ratio of 88.1% expanded 300 bps year over year due to the termination of the non-deductible HIF in 2021 along with the impact from the competitive nature of the group Medicare Advantage business and the adverse effects of COVID-19 in 2020.

The segment’s operating cost ratio of 9.1% contracted 210 bps year over year on the back of termination of the non-deductible HIF in 2021, lower COVID-related administrative costs, scale efficiencies related to growth in individual Medicare Advantage membership and the operating cost efficiencies seen in the third quarter.

Group and Specialty

Revenues from this segment were $1.7 billion, down 6% from the prior-year quarter’s level due to lower fully-insured group commercial membership.
Benefit ratio contracted 660 bps year over year to 86.4%.

Operating cost ratio contracted 30 bps year over year to 24.9%.

Healthcare Services

Revenues of $8.04 billion increased 13% year over year, primarily owing to individual Medicare Advantage membership growth and state-based contracts membership growth, impact of Kindred at Home along with higher revenues related to the company’s provider business.

Operating cost ratio decreased 140 bps year over year to 95%. This was owing to the impact of consolidated Kindred at Home operations, effect of the third-quarter 2020 ratio associated with COVID-19 administrative related costs along with operational improvement in its provider service business and operating cost efficiencies, driven by the earlier implemented productivity measures in the third quarter.

Financial Update (as of Sep 30, 2021)

The company had cash and cash equivalents of $4.3 billion, down 7.9% from the level at 2020 end.

Debt-to-total capitalization was 43%, expanding 1030 bps from the level as of Dec 31, 2020.

Cash flows provided by operating activities came in at $2.8 billion, comparing favorably with the year-ago quarter’s figure of $1.8 billion.

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 third 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 $90 million in the third quarter.

2021 Guidance

After announcing third-quarter results, the company revised its 2021 guidance.

Adjusted EPS is now expected to be $20.50, below the previous guided range of $21.25-$21.75.

For the full year, the company expects individual Medicare Advantage membership growth to 450000 members, up 11% year over year.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -48.43% due to these changes.

VGM Scores

At this time, Humana has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. It's no surprise Humana has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.