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Why Is Humana (HUM) Up 13.1% Since Last Earnings Report?
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A month has gone by since the last earnings report for Humana (HUM - Free Report) . Shares have added about 13.1% 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.
Premium Growth Propels Humana to Easy Q1 Earnings Beat
Humana delivered better-than-expected first-quarter 2024 earnings, fueled by higher premiums, improvement in the Insurance segment and growing strength in Medicare Advantage. In fact, it raised full-year individual Medicare Advantage membership guidance. However, the positives were partially offset by higher operating expenses and lower overall medical memberships.
It posted adjusted earnings per share (EPS) of $7.23, beating the Zacks Consensus Estimate by 20.1%. However, the figure declined from $9.38 per share in the year-ago period.
Humana's adjusted revenues rose 14.3% from the previous year, reaching $29.3 billion. Also, the top line exceeded the consensus estimate by 2.6%. Let’s delve deeper.
Operational Update
Total premiums of Humana amounted to $28.3 billion, which improved 10.6% year over year in the first quarter and outpaced the Zacks Consensus Estimate of $27 billion and our model estimate of $27.2 billion.
Services revenues increased 6.3% year over year to almost $1.1 billion and beat the consensus mark of $942.2 million and our estimate of $960.6 million. Investment income of $288 million increased 49.2% year over year in the quarter under review but missed the consensus estimate of $298.9 million.
The benefits expense ratio came in at 88.9%, which deteriorated 340 basis points (bps) year over year due to increased Medicare Advantage medical cost trends, partially offset by the impact of pricing.
Total operating expenses of $28.4 billion increased 13.4% year over year and came higher than our model estimate of $27.3 billion. The increase was mainly due to higher overall benefits expenses and operating costs. The operating cost ratio, however, improved 80 bps year over year to 14.6%, thanks to improving scale and cost efficiencies.
Humana reported an operating income of $1.2 billion in the first quarter, down from the year-ago income of $1.7 billion. However, the reported figure beat our estimate of $1.1 billion.
Segmental Update
Insurance
The segment’s adjusted revenues rose 10.8% year over year to $28.7 billion in the quarter under review, higher than our estimate of $27.6 billion.
Adjusted operating income of $903 million declined from operating income of $1.3 billion. The adjusted benefits expense ratio deteriorated 300 bps year over year to 89.4%. The adjusted operating cost ratio of 8.2% improved 80 bps year over year due to scale efficiencies related to individual Medicare Advantage membership growth and administrative cost efficiencies.
As of Mar 31, 2024, the total medical membership of the segment came in at 16.17 million. The figure dipped 5.7% year over year.
CenterWell
The segment recorded revenues of $4.8 billion in the first quarter, which increased 6.9% and beat our estimate of $4.5 billion. Growth in the Primary Care business and a solid Home Solutions business provided an impetus to the segment's quarterly performance.
Adjusted operating income decreased 11.6% year over year to $335 million. The segment’s operating cost ratio of 93% deteriorated 140 bps year over year in the quarter under review.
Financial Update (as of Mar 31, 2024)
Humana exited the first quarter with cash and cash equivalents of $5.9 billion, which rose from the $4.7 billion figure at 2023 end. Total assets of $50.1 billion climbed from the 2023-end level of $47.1 billion.
Long-term debt amounted to $12.4 billion, which increased from the $10.2 billion figure as of Dec 31, 2023. Short-term debt came in at $822 million. Debt to capitalization rose to 45.1% from 41.8% at the 2023-end.
Total stockholders’ equity of $16.2 billion marginally decreased from the $16.3 billion figure at 2023 end.
In first-quarter 2024, Humana generated a net operating cash flow of $423 million, which plunged from the prior-year level of $6.7 billion.
Capital Deployment Update
Humana bought back shares worth $715 million till Apr 23, 2024. It had a leftover share repurchase capacity of $2.96 billion as of Apr 23, 2024.
2024 Outlook
Adjusted EPS is still projected at around $16, suggesting a decline from the 2023 figure of $26.09. GAAP EPS is now estimated to be around $13.93, down from the year-ago level of $20. It no longer expects its margin recovery initiatives to provide a $6-$10 per share growth in adjusted EPS in 2025. Lower-than-expected reimbursement rates can affect its results.
Management currently projects individual Medicare Advantage membership to witness growth of around 150,000 this year. Group Medicare Advantage membership is expected to increase by around 45,000. Membership from the Medicare stand-alone prescription drug plan is estimated to decline by around 650,000 members.
Revenues are still expected to be around $113 billion, which indicates an improvement from the 2023 figure of $106.4 billion. The Insurance segment’s revenues are forecasted to be around $110 billion. Revenues of the CenterWell segment, on a GAAP basis, are expected to be around $19 billion.
The benefit ratio of the Insurance unit is expected to stay around 90% for 2024. The consolidated GAAP operating cost ratio is anticipated to be approximately 11.4%. The effective tax rate is expected to be around 25% in non-GAAP measures and about 25.2% in GAAP measures. Cash flow from operations is expected to be around $2 billion this year. Meanwhile, capital expenditures are projected to be roughly $800 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Humana has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 downward 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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Why Is Humana (HUM) Up 13.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Humana (HUM - Free Report) . Shares have added about 13.1% 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.
Premium Growth Propels Humana to Easy Q1 Earnings Beat
Humana delivered better-than-expected first-quarter 2024 earnings, fueled by higher premiums, improvement in the Insurance segment and growing strength in Medicare Advantage. In fact, it raised full-year individual Medicare Advantage membership guidance. However, the positives were partially offset by higher operating expenses and lower overall medical memberships.
It posted adjusted earnings per share (EPS) of $7.23, beating the Zacks Consensus Estimate by 20.1%. However, the figure declined from $9.38 per share in the year-ago period.
Humana's adjusted revenues rose 14.3% from the previous year, reaching $29.3 billion. Also, the top line exceeded the consensus estimate by 2.6%. Let’s delve deeper.
Operational Update
Total premiums of Humana amounted to $28.3 billion, which improved 10.6% year over year in the first quarter and outpaced the Zacks Consensus Estimate of $27 billion and our model estimate of $27.2 billion.
Services revenues increased 6.3% year over year to almost $1.1 billion and beat the consensus mark of $942.2 million and our estimate of $960.6 million. Investment income of $288 million increased 49.2% year over year in the quarter under review but missed the consensus estimate of $298.9 million.
The benefits expense ratio came in at 88.9%, which deteriorated 340 basis points (bps) year over year due to increased Medicare Advantage medical cost trends, partially offset by the impact of pricing.
Total operating expenses of $28.4 billion increased 13.4% year over year and came higher than our model estimate of $27.3 billion. The increase was mainly due to higher overall benefits expenses and operating costs. The operating cost ratio, however, improved 80 bps year over year to 14.6%, thanks to improving scale and cost efficiencies.
Humana reported an operating income of $1.2 billion in the first quarter, down from the year-ago income of $1.7 billion. However, the reported figure beat our estimate of $1.1 billion.
Segmental Update
Insurance
The segment’s adjusted revenues rose 10.8% year over year to $28.7 billion in the quarter under review, higher than our estimate of $27.6 billion.
Adjusted operating income of $903 million declined from operating income of $1.3 billion. The adjusted benefits expense ratio deteriorated 300 bps year over year to 89.4%. The adjusted operating cost ratio of 8.2% improved 80 bps year over year due to scale efficiencies related to individual Medicare Advantage membership growth and administrative cost efficiencies.
As of Mar 31, 2024, the total medical membership of the segment came in at 16.17 million. The figure dipped 5.7% year over year.
CenterWell
The segment recorded revenues of $4.8 billion in the first quarter, which increased 6.9% and beat our estimate of $4.5 billion. Growth in the Primary Care business and a solid Home Solutions business provided an impetus to the segment's quarterly performance.
Adjusted operating income decreased 11.6% year over year to $335 million. The segment’s operating cost ratio of 93% deteriorated 140 bps year over year in the quarter under review.
Financial Update (as of Mar 31, 2024)
Humana exited the first quarter with cash and cash equivalents of $5.9 billion, which rose from the $4.7 billion figure at 2023 end. Total assets of $50.1 billion climbed from the 2023-end level of $47.1 billion.
Long-term debt amounted to $12.4 billion, which increased from the $10.2 billion figure as of Dec 31, 2023. Short-term debt came in at $822 million. Debt to capitalization rose to 45.1% from 41.8% at the 2023-end.
Total stockholders’ equity of $16.2 billion marginally decreased from the $16.3 billion figure at 2023 end.
In first-quarter 2024, Humana generated a net operating cash flow of $423 million, which plunged from the prior-year level of $6.7 billion.
Capital Deployment Update
Humana bought back shares worth $715 million till Apr 23, 2024. It had a leftover share repurchase capacity of $2.96 billion as of Apr 23, 2024.
2024 Outlook
Adjusted EPS is still projected at around $16, suggesting a decline from the 2023 figure of $26.09. GAAP EPS is now estimated to be around $13.93, down from the year-ago level of $20. It no longer expects its margin recovery initiatives to provide a $6-$10 per share growth in adjusted EPS in 2025. Lower-than-expected reimbursement rates can affect its results.
Management currently projects individual Medicare Advantage membership to witness growth of around 150,000 this year. Group Medicare Advantage membership is expected to increase by around 45,000. Membership from the Medicare stand-alone prescription drug plan is estimated to decline by around 650,000 members.
Revenues are still expected to be around $113 billion, which indicates an improvement from the 2023 figure of $106.4 billion. The Insurance segment’s revenues are forecasted to be around $110 billion. Revenues of the CenterWell segment, on a GAAP basis, are expected to be around $19 billion.
The benefit ratio of the Insurance unit is expected to stay around 90% for 2024. The consolidated GAAP operating cost ratio is anticipated to be approximately 11.4%. The effective tax rate is expected to be around 25% in non-GAAP measures and about 25.2% in GAAP measures. Cash flow from operations is expected to be around $2 billion this year. Meanwhile, capital expenditures are projected to be roughly $800 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Humana has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 downward 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.