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Humana (HUM) Up 15.1% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Humana (HUM - Free Report) . Shares have added about 15.1% 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 Q3 Earnings Beat on Growing Premiums & Cost Management
Humana posted third-quarter 2024 adjusted earnings per share (EPS) of $4.16, which surpassed the Zacks Consensus Estimate by 19.5%. However, the bottom line fell from $7.78 per share a year ago.
Adjusted revenues improved 14.8% year over year to $29.3 billion. The top line beat the consensus mark by 2.2%.
The better-than-expected quarterly results benefited from strong premium growth, improved operating cost management and better-than expected Medicare Advantage membership. However, the upside was partly offset by rising benefits expenses.
Q3 Operational Update
Humana’s total premiums of $27.95 billion advanced 11.4% year over year, higher than the Zacks Consensus Estimate of $27.28 billion and our estimate of $26.99 billion. Services revenues rose 8.6% year over year to $1.1 billion, beating the consensus mark of $1.06 billion and our estimate of $950.1 million. Investment income was $343 million, up 11.4% year over year. The metric beat the consensus estimate of $303.1 million.
The benefits expense ratio deteriorated 330 basis points (bps) year over year to 89.9% due to increased non-inpatient costs, including specialty drug expenses.
Total operating expenses escalated 13.7% year over year to $28.67 billion, higher than our estimate of $27.6 billion. The year-over-year increase was mainly due to elevated benefits expenses and operating costs. Meanwhile, the operating cost ratio improved 100 bps year over year to 11.5%.
HUM’s operating income of $728 million, which tumbled 39.6% year over year, outpaced our estimate of $720.4 million.
Q3 Segmental Update
Insurance
The segment recorded adjusted revenues of $28.27 billion in the third quarter, which grew 14.9% year over year, attributable to improved per-member Medicare premiums, and membership growth in Medicare Advantage business and state-based contracts.
Adjusted operating income dropped 58.6% year over year to $329 million. Adjusted benefits expense ratio of 90.5% deteriorated 310 bps year over year. Adjusted operating cost ratio improved 80 bps year over year to 9.1%.
Total medical membership of the segment was 16.36 million as of Sept. 30, 2024, which fell 3.6% year over year but came above the Zacks Consensus Estimate of 16.29 million.
CenterWell
The segment’s revenues advanced 8.2% year over year to $5.04 billion, higher than the Zacks Consensus Estimate of $4.84 billion and our estimate of $4.77 billion. The unit was aided by an expanding value-based home care model and improved revenues derived from the company’s Primary Care business. Growth in the specialty pharmacy business also supported the segment.
Adjusted operating income of $439 million fell 3.1% year over year. The operating cost ratio deteriorated 100 bps year over year to 91.3%.
Financial Update (As of Sept. 30, 2024)
Humana exited the third quarter with cash and cash equivalents of $5.12 billion, which climbed from the 2023-end level of $4.69 billion. Total assets of $50.01 billion increased from the $47.07 billion figure at 2023 end.
Long-term debt amounted to $11.89 billion, up from the $10.21 billion figure as of Dec 31, 2023. Short-term debt was $1.14 billion. Debt to capitalization came in at 42.3%, which deteriorated 50 bps from the 2023-end.
Total stockholders’ equity of $17.57 billion grew from the 2023-end level of $16.26 billion.
HUM generated net cash from operations of $3.49 billion in the first nine months of 2024, which declined from the prior-year comparable period’s $11.12 billion.
Capital Deployment Update
Humana bought back shares worth $750 million year to date. It had a leftover share repurchase capacity of $2.93 billion as of Oct. 29, 2024.
2024 Outlook
Adjusted EPS is projected to be at least $16, which indicates a 38.7% decline from the 2023 reported figure. GAAP EPS is estimated to be at least $12.89 now. For 2025, it expects adjusted EPS to be at least in line with the 2024 figure.
Revenues are forecast to be around $116 billion in 2024. The outlook indicates a 9% improvement from the 2023 reported figure. The Insurance segment’s revenues are estimated to be $112 billion. Revenues of the CenterWell segment, on a GAAP basis, are expected to be $19 billion.
Management currently projects individual Medicare Advantage membership to witness growth of around 265,000 this year. Group Medicare Advantage membership is now expected to increase by around 35,000 members, down from 45,000 expected earlier. Membership from the Medicare stand-alone PDP is estimated to decline by around 600,000. State-based contracts are now expected to witness 200,000 members growth, down from the previous estimate of 250,000 members.
The benefit ratio of the Insurance unit continues to be expected around 90%. The consolidated GAAP operating cost ratio is still anticipated at approximately 11.4%.
Cash flow from operations is now expected to be around $2.75 billion. Meanwhile, capital expenditures are now projected to be roughly $600 million.
Non-GAAP effective tax rate is still expected at 25%, while weighted average share count is expected at around 121 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -36.73% due to these changes.
VGM Scores
Currently, Humana has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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.
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Humana (HUM) Up 15.1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Humana (HUM - Free Report) . Shares have added about 15.1% 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 Q3 Earnings Beat on Growing Premiums & Cost Management
Humana posted third-quarter 2024 adjusted earnings per share (EPS) of $4.16, which surpassed the Zacks Consensus Estimate by 19.5%. However, the bottom line fell from $7.78 per share a year ago.
Adjusted revenues improved 14.8% year over year to $29.3 billion. The top line beat the consensus mark by 2.2%.
The better-than-expected quarterly results benefited from strong premium growth, improved operating cost management and better-than expected Medicare Advantage membership. However, the upside was partly offset by rising benefits expenses.
Q3 Operational Update
Humana’s total premiums of $27.95 billion advanced 11.4% year over year, higher than the Zacks Consensus Estimate of $27.28 billion and our estimate of $26.99 billion. Services revenues rose 8.6% year over year to $1.1 billion, beating the consensus mark of $1.06 billion and our estimate of $950.1 million. Investment income was $343 million, up 11.4% year over year. The metric beat the consensus estimate of $303.1 million.
The benefits expense ratio deteriorated 330 basis points (bps) year over year to 89.9% due to increased non-inpatient costs, including specialty drug expenses.
Total operating expenses escalated 13.7% year over year to $28.67 billion, higher than our estimate of $27.6 billion. The year-over-year increase was mainly due to elevated benefits expenses and operating costs. Meanwhile, the operating cost ratio improved 100 bps year over year to 11.5%.
HUM’s operating income of $728 million, which tumbled 39.6% year over year, outpaced our estimate of $720.4 million.
Q3 Segmental Update
Insurance
The segment recorded adjusted revenues of $28.27 billion in the third quarter, which grew 14.9% year over year, attributable to improved per-member Medicare premiums, and membership growth in Medicare Advantage business and state-based contracts.
Adjusted operating income dropped 58.6% year over year to $329 million. Adjusted benefits expense ratio of 90.5% deteriorated 310 bps year over year. Adjusted operating cost ratio improved 80 bps year over year to 9.1%.
Total medical membership of the segment was 16.36 million as of Sept. 30, 2024, which fell 3.6% year over year but came above the Zacks Consensus Estimate of 16.29 million.
CenterWell
The segment’s revenues advanced 8.2% year over year to $5.04 billion, higher than the Zacks Consensus Estimate of $4.84 billion and our estimate of $4.77 billion. The unit was aided by an expanding value-based home care model and improved revenues derived from the company’s Primary Care business. Growth in the specialty pharmacy business also supported the segment.
Adjusted operating income of $439 million fell 3.1% year over year. The operating cost ratio deteriorated 100 bps year over year to 91.3%.
Financial Update (As of Sept. 30, 2024)
Humana exited the third quarter with cash and cash equivalents of $5.12 billion, which climbed from the 2023-end level of $4.69 billion. Total assets of $50.01 billion increased from the $47.07 billion figure at 2023 end.
Long-term debt amounted to $11.89 billion, up from the $10.21 billion figure as of Dec 31, 2023. Short-term debt was $1.14 billion. Debt to capitalization came in at 42.3%, which deteriorated 50 bps from the 2023-end.
Total stockholders’ equity of $17.57 billion grew from the 2023-end level of $16.26 billion.
HUM generated net cash from operations of $3.49 billion in the first nine months of 2024, which declined from the prior-year comparable period’s $11.12 billion.
Capital Deployment Update
Humana bought back shares worth $750 million year to date. It had a leftover share repurchase capacity of $2.93 billion as of Oct. 29, 2024.
2024 Outlook
Adjusted EPS is projected to be at least $16, which indicates a 38.7% decline from the 2023 reported figure. GAAP EPS is estimated to be at least $12.89 now. For 2025, it expects adjusted EPS to be at least in line with the 2024 figure.
Revenues are forecast to be around $116 billion in 2024. The outlook indicates a 9% improvement from the 2023 reported figure. The Insurance segment’s revenues are estimated to be $112 billion. Revenues of the CenterWell segment, on a GAAP basis, are expected to be $19 billion.
Management currently projects individual Medicare Advantage membership to witness growth of around 265,000 this year. Group Medicare Advantage membership is now expected to increase by around 35,000 members, down from 45,000 expected earlier. Membership from the Medicare stand-alone PDP is estimated to decline by around 600,000. State-based contracts are now expected to witness 200,000 members growth, down from the previous estimate of 250,000 members.
The benefit ratio of the Insurance unit continues to be expected around 90%. The consolidated GAAP operating cost ratio is still anticipated at approximately 11.4%.
Cash flow from operations is now expected to be around $2.75 billion. Meanwhile, capital expenditures are now projected to be roughly $600 million.
Non-GAAP effective tax rate is still expected at 25%, while weighted average share count is expected at around 121 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -36.73% due to these changes.
VGM Scores
Currently, Humana has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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.