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Humana (HUM) Q2 Earnings Beat Estimates, Ups '22 EPS View

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Humana Inc. (HUM - Free Report) reported second-quarter 2022 adjusted earnings per share of $8.67, which outpaced the Zacks Consensus Estimate by 13%. The bottom line improved 26% year over year, courtesy of better-than-expected medical cost trends within its individual Medicare Advantage and Medicaid businesses coupled with lower-than-expected administrative expenses.

The quarterly results benefited from organic growth within the Medicaid business of Humana, which in turn fetched higher premiums and customer base. Strong contribution from its Retail and Healthcare Services segments also contributed to the strong quarterly results. However, the bottom line was partly hurt by elevated operating costs.

Revenues of Humana amounted to $23.7 billion, which improved 15% year over year in the second quarter. The growth can be attributed to individual Medicare Advantage and state-based contracts membership growth coupled with increased per member individual Medicare Advantage premiums. Kindred at Home revenues stemming from external customers contributed to the top-line growth. The top line beat the consensus mark by 1.2%. 

Operational Update

Total premiums of Humana climbed 11.5% year over year in the quarter under review, while revenues from services increased nearly three-fold year over year. Meanwhile, investment income plunged 73.3% year over year.

The benefits expense ratio remained unchanged year over year at 85.8% in the second quarter. Operating cost ratio came in at 13.4%, which increased 310 bps year over year as a result of the consolidation of Kindred at Home operations and the $203 million impact in the quarter stemming from asset and software impairment and abandonment.

Total operating expenses of $22.4 billion escalated 15.7% year over year, mainly due to higher benefits and operating costs.

Net income of Humana advanced 18.5% year over year to $697 million during the second quarter.

Humana Inc. Price, Consensus and EPS Surprise

Humana Inc. Price, Consensus and EPS Surprise

Humana Inc. price-consensus-eps-surprise-chart | Humana Inc. Quote

Segmental Results

Retail

The segment reported revenues of $20.9 billion in the quarter under review, which increased 13% year over year, driven by individual Medicare Advantage along with state-based contracts membership growth and improved per member individual Medicare Advantage premiums. Adjusted earnings advanced 11% year over year to $932 million.

The benefits expense ratio remained flat year over year at 87% in the second quarter. The segment’s operating cost ratio decreased 10 bps year over year to 8.2%, thanks to scale efficiencies linked with Humana’s individual Medicare Advantage membership growth.

As of Jun 30, 2022, the total medical membership of the segment witnessed a 3.2% year-over-year increase.

Group and Specialty

Revenues from this segment decreased 8% year over year to $1.6 billion in the second quarter due to lower fully-insured commercial medical and ASO commercial membership. Adjusted earnings more than doubled year over year to $102 million.

Benefits expense ratio declined 630 bps year over year to 76.3% during the quarter under review. Operating cost ratio of 26.3% increased 240 bps year over year as a result of declining membership at a higher rate than the decrease in absolute administrative costs and investments undertaken across the Military services business.

Healthcare Services

The segment recorded revenues of $9 billion, which climbed 19% year over year in the second quarter. The upside can be attributed to higher pharmacy revenues resulting from individual Medicare Advantage and state-based contracts membership growth. Benefits from the Kindred at Home revenues also contributed to the upside. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 25.3% year over year to $486 million.

Operating cost ratio of 94.5% declined 130 bps year over year due to the impact of consolidation of Kindred at Home operations.

Financial Update (as of Jun 30, 2022)

Humana exited the second quarter with cash and cash equivalents of $5.2 billion, which surged 51.8% from the 2021-end level. Total assets of $46.8 billion increased 5.6% from the figure at the 2021 end.

HUM’s long-term debt amounted to $11.3 billion, up 7.1% from the 2021-end figure. It had short-term debt of $1.5 billion. Debt to total capitalization increased 1,270 bps year over year to 45.3%.

Total stockholders’ equity of $15.5 billion declined 3.7% from the figure as of Dec 31, 2021.

Operating cash flows increased nearly three-fold year over year to $959 million during the second quarter.

Capital Deployment

During the second quarter, Humana bought back shares worth $4 million. As of Jul 26, 2022, it had $2 billion left under the repurchase authorization. In the same time frame, HUM paid dividends of $100 million to its shareholders.

2022 EPS Outlook Hiked

Owing to the lower utilization trends and dearth of COVID-19-linked volatilities witnessed by Humana so far, management upped its adjusted earnings per share (EPS) outlook for 2022. It currently expects the metric to be around $24.75, higher than the prior projection of roughly $24.50. The revised guidance indicates 20% growth from the 2021 reported figure. Meanwhile, Humana anticipates that a headwind of 50 cents related to the pandemic is likely to impact its EPS figure during the latter half of 2022.

Other Projections

Other than EPS, Humana also revised its full-year guidance with respect to some metrics.

Meanwhile, revenues for 2022 are anticipated within $91.6-$93.2 billion, the mid-point of which indicates an 11.2% improvement from the 2021 reported figure.

Revenues from the Retail segment are estimated at $81.7-$82.4 billion, up from the prior outlook of $81.2-$82.2 billion. Group and Specialty segment revenues are projected between $6 billion and $6.5 billion, down from the previous expectation of $6.2-$6.7 billion. Revenues from the Healthcare Services segment are forecast in the range of $35.4-$35.9 billion, lower than the prior estimate of $35.8-$36.3 billion.

HUM continues to expect individual Medicare Advantage membership to grow by 150,000-200,000 members during 2022. While management anticipates Group Medicare Advantage membership to remain flat year over year, Medicare stand-alone prescription drug plan is likely to decline by 100,000 members.

The benefit ratio from the Retail segment is still estimated at 86.6-87.6%, indicating a decline from 87.9% in 2021. The same for the Group and Specialty segment is forecast at 78.3-78.8%, reflecting a decline from the 2021 figure of 82.5%. Consolidated operating cost ratio is still expected at 13.3-14.3%.

Management continues to estimate cash flow from operations within $3-$3.5 billion, the mid-point of which indicates an increase of 41.3% from the 2021 figure. Capital expenditures are still forecast at around $1.3 billion.

Zacks Rank

Humana currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Medical Sector Releases

Of the Medical sector players that have reported second-quarter results so far, the bottom lines of UnitedHealth Group Inc. (UNH - Free Report) , Elevance Health Inc. (ELV - Free Report) and Universal Health Services, Inc. (UHS - Free Report) beat the Zacks Consensus Estimate.

UnitedHealth Group reported second-quarter 2022 adjusted earnings of $5.57 per share, which beat the Zacks Consensus Estimate by 6.3%. The bottom line improved 19% year over year.

Revenues of UNH were $80.3 billion, which climbed 13% year over year in the second quarter. The top line outpaced the consensus mark by 0.9%. The medical care ratio of UnitedHealth Group improved 130 bps year over year to 81.5% during the quarter under review.

Elevance Health’s second-quarter 2022 earnings of $8.04 per share outpaced the Zacks Consensus Estimate of $7.72. The bottom line improved 14.4% year over year. Operating revenues of Elevance Health in the second quarter totaled $38,482 million, which rose 15.6% year over year.

The top line beat the consensus mark of $38,120 million. As of Jun 30, 2022, medical enrollment of ELV amounted to roughly 47.1 million, which grew 6.1% year over year.

Universal Health reported second-quarter 2022 adjusted earnings of $2.20 per share, which outpaced the Zacks Consensus Estimate by 5.8%. However, the bottom line plunged 41.5% year over year. Net revenues of Universal Health grew 3.9% year over year to $3.3 billion in the second quarter.

The top line beat the consensus mark by a whisker. UHS’s total operating costs of $3.1 billion escalated 12% year over year in the quarter under review.