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Can Solid Retail Segment Drive Humana's (HUM) Q4 Earnings?

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Humana Inc.(HUM - Free Report) will report fourth-quarter 2017 results on Feb 7, before the market opens.

The company has an impressive surprise history. It has delivered positive surprises in each of the last four quarters with an average beat of 6.6%. Last quarter, the company pulled off a positive earnings surprise of 3.7% backed by solid performance of its Retail segment.

 Let’s see how things are shaping up for this announcement. 

Humana’s retail segment has been performing well over past many quarters driven by the company’s Medicare and Medicaid expansion initiatives. The same trend is expected to continue in the fourth quarter as well. This is supported by the Zacks Consensus Estimate of $11.1 billion for the segment’s revenues, reflecting 1.6% year-over-year growth.

The company’s consistent growth in premium revenues has been largely driven by Medical membership growth. Humana has seen solid medical membership increase in its Individual Medicare Advantage and Group Medicare Advantage businesses. The fourth-quarter 2017 Zacks Consensus Estimate for total premiums is currently pegged at $12.8 billion, up 1.6% year over year.

Other Factors

The company is likely to witness growth in standalone Prescription Drug Plans membership in the fourth quarter, adding significantly to the Medicare business.

However, Humana has been witnessing a rise benefit expenses over past many years. The same trend is expected to continue in the fourth quarter as well, putting pressure on margins.

Humana’s Individual commercial membership has remained a drag due to the rise in premiums along with benefit redesigns in place since the beginning of 2016. Along with other companies like Aetna Inc , Anthem Inc (ANTM - Free Report) , UnitedHealth Group, Inc (UNH - Free Report) and many more, Humana has also started scaling down this business and plans to exit it in 2018. This segment is expected to have continued to affect the company’s results in the fourth quarter as well, putting pressure on membership and the overall revenue growth.

Earnings Whispers

Our proven model shows that Humana has the right combination of two key ingredients to beat estimates this quarter.

Zacks ESP: Humana's Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.01%. The positive ESP is a leading indicator of a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Humana Inc. Price and EPS Surprise

Zacks Rank: Humana carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating on earnings. The combination of Humana’s favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank  stocks here.

Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

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