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Humana (HUM) Up 1.2% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Humana (HUM - Free Report) . Shares have added about 1.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Humana due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Humana Q4 Earnings Beat Mark, '23 EPS View Upbeat
Humana reported fourth-quarter 2022 adjusted earnings per share (EPS) of $1.62, beating the Zacks Consensus Estimate by 11%. The bottom line climbed 30.6% year over year.
The quarterly results benefited on the back of growing premiums coupled with solid segmental performances. However, the upside was partly hurt by an elevated operating expense level.
Revenues of Humana amounted to $22,439 million, which rose 6.6% year over year in the quarter under review. The improvement came on the back of membership growth stemming from its individual Medicare Advantage business and state-based contract wins. Improved per-member individual Medicare Advantage premiums also contributed to the quarterly results. Yet, the top line fell short of the consensus mark by a whisker.
Operational Update
Total premiums of Humana grew 7.3% year over year to $21,275 million. The figure outpaced the Zacks Consensus Estimate of $21,181 million.
Revenues from services came in at $1,004 million, which dropped 19.9% year over year in the fourth quarter. Investment income of $160 million compared favorably against the prior-year quarter’s investment loss of $34 million.
The benefits expense ratio improved 60 basis points (bps) year over year to 87.3% on account of a decline in patient utilization within HUM’s individual Medicare Advantage business. The operating cost ratio of 15.9% improved 20 bps year over year, thanks to the divestiture of Humana’s 60% ownership stake in Kindred at Home (KAH) Hospice operations in August 2022.
Total operating expenses escalated 6.3% year over year to $22,315 million. This was due to an increase in benefits, operating costs, and depreciation and amortization.
Humana reported a net loss of $18 million, wider than the prior-year quarter’s loss of $13 million.
Realignment of Segments
Earlier, HUM had three reportable segments - Retail, Group and Specialty, and Healthcare Services. In December 2022, it redistributed some of its businesses within its earlier segments. The realignment gave rise to two distinct segments: Insurance and CenterWell. The Insurance unit encompasses those businesses that were part of the Retail as well as Group and Specialty segments. Earlier contained within the Healthcare Services unit, the Pharmacy Benefit Manager (PBM) business also forms a part of the newly formed Insurance segment. The second unit named CenterWell comprisees the payor-agnostic healthcare services offerings of Humana that includes pharmacy dispensing services, provider services and home services.
Insurance
The segment recorded revenues of $21,599 million, which advanced 7.3% year over year in the fourth quarter on the back of a growing customer base across its individual Medicare Advantage business and state-based contracts.
Adjusted earnings came in at $53 million in the quarter under review, while a loss of $100 million was reported in the prior-year quarter. The benefits expense ratio improved 100 bps year over year to 87.5%. The operating cost ratio of 12.8% deteriorated 10 bps year over year due to elevated marketing expenses that Humana had incurred in 2022 to provide an impetus to its individual Medicare Advantage growth.
Total medical membership of the segment came in at 17.1 million as of Dec 31, 2022, which inched up 0.1% year over year.
CenterWell
The segment’s revenues of $4,141 million increased 1.4% year over year in the fourth quarter, attributable to higher membership within HUM’s individual Medicare Advantage business, improved pharmacy revenues coupled with growing revenues from its provider business.
Operating income of $263 million tumbled 12% year over year. The segment’s adjusted EBITDA slid 3.6% year over year to $325 million in the quarter under review.
The operating cost ratio of 92.6% deteriorated 90 bps year over year.
Financial Update (as of Dec 31, 2022)
Humana exited the fourth quarter with cash and cash equivalents of $5,061 million, which soared 49.1% from the figure in 2021 end. Total assets of $43,055 million decreased 2.9% from the 2021-end level.
HUM’s long-term debt totaled $9,034 million, down 14.3% from the figure as of Dec 31, 2021. Short-term debt amounted to $2,092 million. Debt to total capitalization improved 170 bps year over year to 42% at the fourth-quarter end.
Total stockholders’ equity of $15,370 million dropped 4.6% from the level in 2021 end.
Net cash used in operating activities amounted to $5,127 million in the fourth quarter, which is way higher than the prior quarter’s figure of $96 million.
Capital Deployment Update
Humana bought back shares worth $1,064 million in the fourth quarter. It had a leftover share repurchase capacity of $1 billion as of Jan 31, 2023. HUM also paid out dividends of $101 million to its shareholders during the quarter under review.
2023 Outlook
This year, HUM anticipates revenues within $102.7-$104.7 billion, the mid-point of which indicates an improvement of 11.6% from the 2022 figure of $92.9 billion.
Adjusted EPS is estimated to be a minimum of $28.00, which suggests minimum growth of 10.9% from the 2022 figure of $25.24.
Revenues from the Insurance segment are projected within $99.5-$101 billion, the mid-point of which indicates a 12.9% rise from the 2022 figure of $88.8 billion. The CenterWell segment’s revenues are forecasted between $18 billion and $18.5 billion, the mid-point of which suggests 5.5% growth from the 2022 figure of $17.3 billion.
Management anticipates individual Medicare Advantage membership to witness a minimum membership growth of 625,000 in 2023, up from the earlier projection of an increase in the range of 325,000-400,000.
Group Medicare Advantage membership is likely to decrease by around 60,000, while the same from the Medicare stand-alone prescription drug plan is estimated to decline by around 800,000 members.
The benefit ratio of the Insurance unit is estimated at 86.3-87.3% in 2023. The consolidated operating cost ratio is expected at 11.6%-12.6%.
Cash flow from operations is forecasted at around $4.5 billion this year, while capital expenditures are projected at $1.2 billion.
2025 Growth Target
Humana remains optimistic to fulfil its target of attaining adjusted earnings of $37 per share within 2025.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 10.78% due to these changes.
VGM Scores
At this time, Humana has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, 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 trending upward for the stock, and the magnitude of these revisions looks promising. 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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Humana (HUM) Up 1.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Humana (HUM - Free Report) . Shares have added about 1.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Humana due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Humana Q4 Earnings Beat Mark, '23 EPS View Upbeat
Humana reported fourth-quarter 2022 adjusted earnings per share (EPS) of $1.62, beating the Zacks Consensus Estimate by 11%. The bottom line climbed 30.6% year over year.
The quarterly results benefited on the back of growing premiums coupled with solid segmental performances. However, the upside was partly hurt by an elevated operating expense level.
Revenues of Humana amounted to $22,439 million, which rose 6.6% year over year in the quarter under review. The improvement came on the back of membership growth stemming from its individual Medicare Advantage business and state-based contract wins. Improved per-member individual Medicare Advantage premiums also contributed to the quarterly results. Yet, the top line fell short of the consensus mark by a whisker.
Operational Update
Total premiums of Humana grew 7.3% year over year to $21,275 million. The figure outpaced the Zacks Consensus Estimate of $21,181 million.
Revenues from services came in at $1,004 million, which dropped 19.9% year over year in the fourth quarter. Investment income of $160 million compared favorably against the prior-year quarter’s investment loss of $34 million.
The benefits expense ratio improved 60 basis points (bps) year over year to 87.3% on account of a decline in patient utilization within HUM’s individual Medicare Advantage business. The operating cost ratio of 15.9% improved 20 bps year over year, thanks to the divestiture of Humana’s 60% ownership stake in Kindred at Home (KAH) Hospice operations in August 2022.
Total operating expenses escalated 6.3% year over year to $22,315 million. This was due to an increase in benefits, operating costs, and depreciation and amortization.
Humana reported a net loss of $18 million, wider than the prior-year quarter’s loss of $13 million.
Realignment of Segments
Earlier, HUM had three reportable segments - Retail, Group and Specialty, and Healthcare Services. In December 2022, it redistributed some of its businesses within its earlier segments. The realignment gave rise to two distinct segments: Insurance and CenterWell. The Insurance unit encompasses those businesses that were part of the Retail as well as Group and Specialty segments. Earlier contained within the Healthcare Services unit, the Pharmacy Benefit Manager (PBM) business also forms a part of the newly formed Insurance segment. The second unit named CenterWell comprisees the payor-agnostic healthcare services offerings of Humana that includes pharmacy dispensing services, provider services and home services.
Insurance
The segment recorded revenues of $21,599 million, which advanced 7.3% year over year in the fourth quarter on the back of a growing customer base across its individual Medicare Advantage business and state-based contracts.
Adjusted earnings came in at $53 million in the quarter under review, while a loss of $100 million was reported in the prior-year quarter. The benefits expense ratio improved 100 bps year over year to 87.5%. The operating cost ratio of 12.8% deteriorated 10 bps year over year due to elevated marketing expenses that Humana had incurred in 2022 to provide an impetus to its individual Medicare Advantage growth.
Total medical membership of the segment came in at 17.1 million as of Dec 31, 2022, which inched up 0.1% year over year.
CenterWell
The segment’s revenues of $4,141 million increased 1.4% year over year in the fourth quarter, attributable to higher membership within HUM’s individual Medicare Advantage business, improved pharmacy revenues coupled with growing revenues from its provider business.
Operating income of $263 million tumbled 12% year over year. The segment’s adjusted EBITDA slid 3.6% year over year to $325 million in the quarter under review.
The operating cost ratio of 92.6% deteriorated 90 bps year over year.
Financial Update (as of Dec 31, 2022)
Humana exited the fourth quarter with cash and cash equivalents of $5,061 million, which soared 49.1% from the figure in 2021 end. Total assets of $43,055 million decreased 2.9% from the 2021-end level.
HUM’s long-term debt totaled $9,034 million, down 14.3% from the figure as of Dec 31, 2021. Short-term debt amounted to $2,092 million. Debt to total capitalization improved 170 bps year over year to 42% at the fourth-quarter end.
Total stockholders’ equity of $15,370 million dropped 4.6% from the level in 2021 end.
Net cash used in operating activities amounted to $5,127 million in the fourth quarter, which is way higher than the prior quarter’s figure of $96 million.
Capital Deployment Update
Humana bought back shares worth $1,064 million in the fourth quarter. It had a leftover share repurchase capacity of $1 billion as of Jan 31, 2023. HUM also paid out dividends of $101 million to its shareholders during the quarter under review.
2023 Outlook
This year, HUM anticipates revenues within $102.7-$104.7 billion, the mid-point of which indicates an improvement of 11.6% from the 2022 figure of $92.9 billion.
Adjusted EPS is estimated to be a minimum of $28.00, which suggests minimum growth of 10.9% from the 2022 figure of $25.24.
Revenues from the Insurance segment are projected within $99.5-$101 billion, the mid-point of which indicates a 12.9% rise from the 2022 figure of $88.8 billion. The CenterWell segment’s revenues are forecasted between $18 billion and $18.5 billion, the mid-point of which suggests 5.5% growth from the 2022 figure of $17.3 billion.
Management anticipates individual Medicare Advantage membership to witness a minimum membership growth of 625,000 in 2023, up from the earlier projection of an increase in the range of 325,000-400,000.
Group Medicare Advantage membership is likely to decrease by around 60,000, while the same from the Medicare stand-alone prescription drug plan is estimated to decline by around 800,000 members.
The benefit ratio of the Insurance unit is estimated at 86.3-87.3% in 2023. The consolidated operating cost ratio is expected at 11.6%-12.6%.
Cash flow from operations is forecasted at around $4.5 billion this year, while capital expenditures are projected at $1.2 billion.
2025 Growth Target
Humana remains optimistic to fulfil its target of attaining adjusted earnings of $37 per share within 2025.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 10.78% due to these changes.
VGM Scores
At this time, Humana has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, 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 trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Humana has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.