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Why Is Humana (HUM) Down 2.1% 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 lost about 2.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Humana due for a breakout? 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 drivers.
Humana Q2 Earnings Beat on Medicare Advantage Strength
Humana posted second-quarter 2024 adjusted earnings per share (EPS) of $6.96, which surpassed the Zacks Consensus Estimate by 18.2%. However, the bottom line fell 22.1% year over year.
Adjusted revenues improved 14.2% year over year to $29.4 billion. The top line beat the consensus mark by 2.6%.
The quarterly results benefited from strong premium growth and increased service revenues, driven by expanding Medicare Advantage membership and an improved Primary Care business. However, the upside was partly offset by rising benefits expenses and a continued decline in the company's group commercial medical and standalone prescription drug plan (PDP) membership. Nevertheless, a hiked 2024 guidance for individual Medicare Advantage membership growth seems commendable as Humana derives a major portion of its premiums from this business line.
Operational Update
Humana’s total premiums of $28.1 billion advanced 10.4% year over year, higher than the Zacks Consensus Estimate of $27.2 billion and our estimate of $26.8 billion.
Services revenues rose 12.5% year over year to $1.1 billion, beating the consensus mark of $988.5 million and our estimate of $984.7 million. Investment income was $298 million, up 8.8% year over year. The metric, however, lagged the consensus estimate of $304.7 million and our estimate of $363.7 million.
The benefits expense ratio deteriorated 270 basis points (bps) year over year to 89% due to increased Medicare Advantage medical cost trends.
Total operating expenses escalated 12.2% year over year to $28.4 billion, higher than our estimate of $27.1 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 10.8%, thanks to a boost in scale as a result of expanding Medicare Advantage membership coupled with administrative cost efficiencies.
HUM’s operating income of $1.14 billion, which tumbled 20.5% year over year, outpaced our estimate of $1.06 billion.
Segmental Update
Insurance
The segment recorded adjusted revenues of $28.4 billion in the second quarter, which grew 14.1% 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 29.5% year over year to $826 million. Adjusted benefits expense ratio of 89.4% deteriorated 280 bps year over year. Adjusted operating cost ratio improved 80 bps year over year to 8.4%.
Total medical membership of the segment was 16.3 million as of Jun 30, 2024, which fell 4.8% year over year and came lower than the Zacks Consensus Estimate of 16.33 million.
CenterWell
The segment’s revenues advanced 9.2% year over year to $4.9 billion, higher than the Zacks Consensus Estimate of $4.8 billion and our estimate of $4.7 billion. The unit was aided by an expanding value-based home care model and improved revenues derived from the company’s Primary Care business.
Adjusted operating income of $394 million rose 16.9% year over year. The operating cost ratio improved 60 bps year over year to 92%.
Financial Update (As of Jun 30, 2024)
Humana exited the second quarter with cash and cash equivalents of $5.5 billion, which climbed 17.2% from the 2023-end level. Total assets of $50.1 billion increased 6.4% from the figure at 2023 end.
Long-term debt amounted to $11.7 billion, up 15% from the figure as of Dec 31, 2023. Short-term debt was $1.1 billion. Debt to capitalization came in at 43.6%, which deteriorated 260 bps from the prior-year comparable period.
Total stockholders’ equity of $16.7 billion grew 2.5% from the 2023-end level.
HUM generated net cash from operations of $1.6 billion in the first half of 2024, which declined more than six-fold from the prior-year comparable period.
Capital Deployment Update
Humana bought back shares worth $749.6 million till Jul 30, 2024. It had a leftover share repurchase capacity of $2.93 billion as of Jul 30, 2024.
2024 Outlook Updated
Adjusted EPS is projected to be $16, which indicates a 38.7% decline from the 2023 reported figure. GAAP EPS is estimated to be $12.81 compared with the earlier mentioned $13.93. The revised guidance implies a 36% fall from the 2023 reported figure.
Revenues are forecast to be $116 billion, up from the prior stated $113 billion. The updated outlook indicates a 9% improvement from the 2023 reported figure. The Insurance segment’s revenues are estimated to be $112 billion, up from the earlier mentioned $110 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 225,000 this year while the earlier view called for the metric to witness growth of roughly 150,000 members. Group Medicare Advantage membership is still expected to increase by around 45,000 members. Membership from the Medicare stand-alone PDP is estimated to decline by around 600,000. The previous view expected the metric to witness a membership decline of around 650,000.
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 continues to be expected around $2 billion. Meanwhile, capital expenditures are still projected to be roughly $800 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -7.02% due to these changes.
VGM Scores
Currently, Humana has a poor Growth Score of F, a grade with the same score on the momentum front. 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 D. 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, Centene (CNC - Free Report) , a stock from the same industry, has gained 0.5%. The company reported its results for the quarter ended June 2024 more than a month ago.
Centene reported revenues of $39.84 billion in the last reported quarter, representing a year-over-year change of +5.9%. EPS of $2.42 for the same period compares with $2.10 a year ago.
For the current quarter, Centene is expected to post earnings of $1.60 per share, indicating a change of -20% from the year-ago quarter. The Zacks Consensus Estimate has changed -11.7% over the last 30 days.
Centene has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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Why Is Humana (HUM) Down 2.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Humana (HUM - Free Report) . Shares have lost about 2.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Humana due for a breakout? 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 drivers.
Humana Q2 Earnings Beat on Medicare Advantage Strength
Humana posted second-quarter 2024 adjusted earnings per share (EPS) of $6.96, which surpassed the Zacks Consensus Estimate by 18.2%. However, the bottom line fell 22.1% year over year.
Adjusted revenues improved 14.2% year over year to $29.4 billion. The top line beat the consensus mark by 2.6%.
The quarterly results benefited from strong premium growth and increased service revenues, driven by expanding Medicare Advantage membership and an improved Primary Care business. However, the upside was partly offset by rising benefits expenses and a continued decline in the company's group commercial medical and standalone prescription drug plan (PDP) membership. Nevertheless, a hiked 2024 guidance for individual Medicare Advantage membership growth seems commendable as Humana derives a major portion of its premiums from this business line.
Operational Update
Humana’s total premiums of $28.1 billion advanced 10.4% year over year, higher than the Zacks Consensus Estimate of $27.2 billion and our estimate of $26.8 billion.
Services revenues rose 12.5% year over year to $1.1 billion, beating the consensus mark of $988.5 million and our estimate of $984.7 million. Investment income was $298 million, up 8.8% year over year. The metric, however, lagged the consensus estimate of $304.7 million and our estimate of $363.7 million.
The benefits expense ratio deteriorated 270 basis points (bps) year over year to 89% due to increased Medicare Advantage medical cost trends.
Total operating expenses escalated 12.2% year over year to $28.4 billion, higher than our estimate of $27.1 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 10.8%, thanks to a boost in scale as a result of expanding Medicare Advantage membership coupled with administrative cost efficiencies.
HUM’s operating income of $1.14 billion, which tumbled 20.5% year over year, outpaced our estimate of $1.06 billion.
Segmental Update
Insurance
The segment recorded adjusted revenues of $28.4 billion in the second quarter, which grew 14.1% 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 29.5% year over year to $826 million. Adjusted benefits expense ratio of 89.4% deteriorated 280 bps year over year. Adjusted operating cost ratio improved 80 bps year over year to 8.4%.
Total medical membership of the segment was 16.3 million as of Jun 30, 2024, which fell 4.8% year over year and came lower than the Zacks Consensus Estimate of 16.33 million.
CenterWell
The segment’s revenues advanced 9.2% year over year to $4.9 billion, higher than the Zacks Consensus Estimate of $4.8 billion and our estimate of $4.7 billion. The unit was aided by an expanding value-based home care model and improved revenues derived from the company’s Primary Care business.
Adjusted operating income of $394 million rose 16.9% year over year. The operating cost ratio improved 60 bps year over year to 92%.
Financial Update (As of Jun 30, 2024)
Humana exited the second quarter with cash and cash equivalents of $5.5 billion, which climbed 17.2% from the 2023-end level. Total assets of $50.1 billion increased 6.4% from the figure at 2023 end.
Long-term debt amounted to $11.7 billion, up 15% from the figure as of Dec 31, 2023. Short-term debt was $1.1 billion. Debt to capitalization came in at 43.6%, which deteriorated 260 bps from the prior-year comparable period.
Total stockholders’ equity of $16.7 billion grew 2.5% from the 2023-end level.
HUM generated net cash from operations of $1.6 billion in the first half of 2024, which declined more than six-fold from the prior-year comparable period.
Capital Deployment Update
Humana bought back shares worth $749.6 million till Jul 30, 2024. It had a leftover share repurchase capacity of $2.93 billion as of Jul 30, 2024.
2024 Outlook Updated
Adjusted EPS is projected to be $16, which indicates a 38.7% decline from the 2023 reported figure. GAAP EPS is estimated to be $12.81 compared with the earlier mentioned $13.93. The revised guidance implies a 36% fall from the 2023 reported figure.
Revenues are forecast to be $116 billion, up from the prior stated $113 billion. The updated outlook indicates a 9% improvement from the 2023 reported figure. The Insurance segment’s revenues are estimated to be $112 billion, up from the earlier mentioned $110 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 225,000 this year while the earlier view called for the metric to witness growth of roughly 150,000 members. Group Medicare Advantage membership is still expected to increase by around 45,000 members. Membership from the Medicare stand-alone PDP is estimated to decline by around 600,000. The previous view expected the metric to witness a membership decline of around 650,000.
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 continues to be expected around $2 billion. Meanwhile, capital expenditures are still projected to be roughly $800 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -7.02% due to these changes.
VGM Scores
Currently, Humana has a poor Growth Score of F, a grade with the same score on the momentum front. 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 D. 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, Centene (CNC - Free Report) , a stock from the same industry, has gained 0.5%. The company reported its results for the quarter ended June 2024 more than a month ago.
Centene reported revenues of $39.84 billion in the last reported quarter, representing a year-over-year change of +5.9%. EPS of $2.42 for the same period compares with $2.10 a year ago.
For the current quarter, Centene is expected to post earnings of $1.60 per share, indicating a change of -20% from the year-ago quarter. The Zacks Consensus Estimate has changed -11.7% over the last 30 days.
Centene has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.