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Why Is Humana (HUM) Up 0.7% Since Last Earnings Report?
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It has been about a month since the last earnings report for Humana (HUM - Free Report) . Shares have added about 0.7% in that time frame, underperforming 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 Q3 Earnings Beat on Strong Individual MA Unit
Humana delivered robust results in the third quarter of 2023, driven by strong premium growth, increased investment income and an improved operating cost ratio. The company's solid performance in the individual Medicare Advantage business, along with premium growth, played a significant role in these positive results. However, the increase in benefits expenses partially offset these gains.
It posted adjusted earnings per share (EPS) of $7.78, surpassing the Zacks Consensus Estimate by 8.8%. This represents 6.4% year-over-year growth in the bottom line.
Humana's adjusted revenues also saw substantial growth, rising 18.2% compared with the previous year, reaching $25.5 billion. Additionally, the top line exceeded the consensus estimate by 0.6%.
Operational Update
Total premiums of Humana amounted to $25.1 billion, which improved 16.9% year over year in the third quarter and outpaced the Zacks Consensus Estimate by 3%.
Services revenues declined 12.3% year over year to $1 billion but beat our estimate of 3.5%. Investment income of $308 million increased 79.1% year over year in the quarter under review and beat our model estimate of $298.7 million.
The benefits expense ratio came in at 86.6%, which deteriorated 100 basis points (bps) year over year due to investments related to the benefit design of Humana’s products, as well as increased utilization trends in the Medicare Advantage business. The operating cost ratio improved 100 bps year over year to 12.5%, thanks to the divestiture of the 60% ownership interest of Humana in the Gentiva Hospice business, improving scale and cost efficiencies.
Total operating expenses of $25.2 billion increased 16.6% year over year and came higher than our model estimate of $24.7 billion. The increase was mainly due to higher overall benefits expense and operating costs.
Humana reported income from operations of $1.2 billion in the third quarter, which climbed 2.9% year over year but lagged our estimate of $1.3 billion.
Segmental Update
Insurance
The segment’s adjusted revenues rose 19.5% year over year to $24.6 billion in the quarter under review, higher than our estimate of $24.3 billion.
Adjusted operating income of $794 million decreased from $955 million and fell short of our expectations. The adjusted benefits expense ratio deteriorated 190 bps year over year to 87.4%. The adjusted operating cost ratio of 9.9% improved 20 bps year over year due to scale efficiencies related to individual Medicare Advantage membership growth and administrative cost efficiencies.
As of Sep 30, 2023, the total medical membership of the segment came in at 16.96 million. The figure dipped 0.8% year over year.
CenterWell
The segment recorded revenues of $4.7 billion in the third quarter, which inched up from $4.3 billion and beat our estimate of $4.5 billion. Improved Pharmacy Solutions revenues, growth in the Primary Care business and a solid Home Solutions business provided an impetus to the segment's quarterly performance.
Adjusted operating income increased 31.3% year over year to $453 million. The segment’s operating cost ratio of 90.3% improved 170 bps year over year in the quarter under review.
Financial Update (as of Sep 30, 2023)
Humana exited the third quarter with cash and cash equivalents of $15.1 billion, which surged from the $5.1 billion figure at 2022 end. Total assets of $55.9 billion climbed from the 2022-end level of $43.1 billion.
Long-term debt amounted to $9.5 billion, which increased from the $9 billion figure as of Dec 31, 2022. Short-term debt came in at $2.2 billion. Debt to capitalization improved 90 bps year over year to 41.1% at the third-quarter end.
Total stockholders’ equity of $16.9 billion increased from the $15.3 billion figure at 2022 end.
In the first nine months of 2023, Humana generated operating cash flows of $11.1 billion, which increased from the prior-year comparable period’s $9.7 billion.
Capital Deployment Update
Humana bought back shares worth $1 billion in the first nine months of 2023. It had a leftover share repurchase capacity of $1.9 billion as of Oct 31, 2023. Humana announced a dividend of 88.5 cents per share, which will be paid on Jan 26, 2024, to shareholders of record as of Dec 29, 2023.
Outlook
Adjusted EPS continues to be projected at a minimum of $28.25, which suggests growth from the 2022 figure of $25.88. However, GAAP EPS is presently estimated to be a minimum of $26.31, down from the previous guidance of at least $26.91. Humana remains optimistic about attaining its target of adjusted EPS of $37 in 2025.
Management currently projects individual Medicare Advantage membership to witness growth of around 860,000 this year, up 19% from the 2022 level. Group Medicare Advantage membership is still expected to decrease by around 60,000. Membership from the Medicare stand-alone prescription drug plan is estimated to decline by around 700,000 members.
Revenues are reaffirmed to stay within $104.4-$106.4 billion, the midpoint of which indicates an improvement of 13.5% from the 2022 figure. The Insurance segment’s GAAP revenues continue to be forecasted between $101.2 billion and $102.7 billion. Revenues of the CenterWell segment, on a GAAP basis, continue to be expected within $18-$18.5 billion.
The benefit ratio of the Insurance unit is expected to stay around 87.5% for 2023. The consolidated Non-GAAP operating cost ratio is still anticipated to lie between 11.3% and 12.3%.
Cash flow from operations is reaffirmed at around $4.5 billion this year. Meanwhile, capital expenditures are projected to be roughly $1 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -24.11% due to these changes.
VGM Scores
Currently, Humana has a great Growth Score of A, though it is lagging a bit on the Momentum Score front 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 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. Notably, Humana has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Humana is part of the Zacks Medical - HMOs industry. Over the past month, Molina (MOH - Free Report) , a stock from the same industry, has gained 8.3%. The company reported its results for the quarter ended September 2023 more than a month ago.
Molina reported revenues of $8.55 billion in the last reported quarter, representing a year-over-year change of +7.8%. EPS of $5.05 for the same period compares with $4.36 a year ago.
For the current quarter, Molina is expected to post earnings of $4.31 per share, indicating a change of +5.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Molina. Also, the stock has a VGM Score of A.
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Why Is Humana (HUM) Up 0.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Humana (HUM - Free Report) . Shares have added about 0.7% in that time frame, underperforming 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 Q3 Earnings Beat on Strong Individual MA Unit
Humana delivered robust results in the third quarter of 2023, driven by strong premium growth, increased investment income and an improved operating cost ratio. The company's solid performance in the individual Medicare Advantage business, along with premium growth, played a significant role in these positive results. However, the increase in benefits expenses partially offset these gains.
It posted adjusted earnings per share (EPS) of $7.78, surpassing the Zacks Consensus Estimate by 8.8%. This represents 6.4% year-over-year growth in the bottom line.
Humana's adjusted revenues also saw substantial growth, rising 18.2% compared with the previous year, reaching $25.5 billion. Additionally, the top line exceeded the consensus estimate by 0.6%.
Operational Update
Total premiums of Humana amounted to $25.1 billion, which improved 16.9% year over year in the third quarter and outpaced the Zacks Consensus Estimate by 3%.
Services revenues declined 12.3% year over year to $1 billion but beat our estimate of 3.5%. Investment income of $308 million increased 79.1% year over year in the quarter under review and beat our model estimate of $298.7 million.
The benefits expense ratio came in at 86.6%, which deteriorated 100 basis points (bps) year over year due to investments related to the benefit design of Humana’s products, as well as increased utilization trends in the Medicare Advantage business. The operating cost ratio improved 100 bps year over year to 12.5%, thanks to the divestiture of the 60% ownership interest of Humana in the Gentiva Hospice business, improving scale and cost efficiencies.
Total operating expenses of $25.2 billion increased 16.6% year over year and came higher than our model estimate of $24.7 billion. The increase was mainly due to higher overall benefits expense and operating costs.
Humana reported income from operations of $1.2 billion in the third quarter, which climbed 2.9% year over year but lagged our estimate of $1.3 billion.
Segmental Update
Insurance
The segment’s adjusted revenues rose 19.5% year over year to $24.6 billion in the quarter under review, higher than our estimate of $24.3 billion.
Adjusted operating income of $794 million decreased from $955 million and fell short of our expectations. The adjusted benefits expense ratio deteriorated 190 bps year over year to 87.4%. The adjusted operating cost ratio of 9.9% improved 20 bps year over year due to scale efficiencies related to individual Medicare Advantage membership growth and administrative cost efficiencies.
As of Sep 30, 2023, the total medical membership of the segment came in at 16.96 million. The figure dipped 0.8% year over year.
CenterWell
The segment recorded revenues of $4.7 billion in the third quarter, which inched up from $4.3 billion and beat our estimate of $4.5 billion. Improved Pharmacy Solutions revenues, growth in the Primary Care business and a solid Home Solutions business provided an impetus to the segment's quarterly performance.
Adjusted operating income increased 31.3% year over year to $453 million. The segment’s operating cost ratio of 90.3% improved 170 bps year over year in the quarter under review.
Financial Update (as of Sep 30, 2023)
Humana exited the third quarter with cash and cash equivalents of $15.1 billion, which surged from the $5.1 billion figure at 2022 end. Total assets of $55.9 billion climbed from the 2022-end level of $43.1 billion.
Long-term debt amounted to $9.5 billion, which increased from the $9 billion figure as of Dec 31, 2022. Short-term debt came in at $2.2 billion. Debt to capitalization improved 90 bps year over year to 41.1% at the third-quarter end.
Total stockholders’ equity of $16.9 billion increased from the $15.3 billion figure at 2022 end.
In the first nine months of 2023, Humana generated operating cash flows of $11.1 billion, which increased from the prior-year comparable period’s $9.7 billion.
Capital Deployment Update
Humana bought back shares worth $1 billion in the first nine months of 2023. It had a leftover share repurchase capacity of $1.9 billion as of Oct 31, 2023. Humana announced a dividend of 88.5 cents per share, which will be paid on Jan 26, 2024, to shareholders of record as of Dec 29, 2023.
Outlook
Adjusted EPS continues to be projected at a minimum of $28.25, which suggests growth from the 2022 figure of $25.88. However, GAAP EPS is presently estimated to be a minimum of $26.31, down from the previous guidance of at least $26.91. Humana remains optimistic about attaining its target of adjusted EPS of $37 in 2025.
Management currently projects individual Medicare Advantage membership to witness growth of around 860,000 this year, up 19% from the 2022 level. Group Medicare Advantage membership is still expected to decrease by around 60,000. Membership from the Medicare stand-alone prescription drug plan is estimated to decline by around 700,000 members.
Revenues are reaffirmed to stay within $104.4-$106.4 billion, the midpoint of which indicates an improvement of 13.5% from the 2022 figure. The Insurance segment’s GAAP revenues continue to be forecasted between $101.2 billion and $102.7 billion. Revenues of the CenterWell segment, on a GAAP basis, continue to be expected within $18-$18.5 billion.
The benefit ratio of the Insurance unit is expected to stay around 87.5% for 2023. The consolidated Non-GAAP operating cost ratio is still anticipated to lie between 11.3% and 12.3%.
Cash flow from operations is reaffirmed at around $4.5 billion this year. Meanwhile, capital expenditures are projected to be roughly $1 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -24.11% due to these changes.
VGM Scores
Currently, Humana has a great Growth Score of A, though it is lagging a bit on the Momentum Score front 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 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. Notably, Humana has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Humana is part of the Zacks Medical - HMOs industry. Over the past month, Molina (MOH - Free Report) , a stock from the same industry, has gained 8.3%. The company reported its results for the quarter ended September 2023 more than a month ago.
Molina reported revenues of $8.55 billion in the last reported quarter, representing a year-over-year change of +7.8%. EPS of $5.05 for the same period compares with $4.36 a year ago.
For the current quarter, Molina is expected to post earnings of $4.31 per share, indicating a change of +5.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Molina. Also, the stock has a VGM Score of A.