Will Humana (HUM) Beat Q4 Earnings on Higher Enrollment?
We expect managed care company Humana Inc. HUM to beat earnings expectations when it reports fourth-quarter 2015 earnings results on Feb 10, 2016.
Why a Likely Positive Surprise?
Our proven model shows that Humana is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.41%. The Most Accurate estimate of $1.46 is pegged a penny above the Zacks Consensus Estimate. This is a meaningful indicator of a likely positive earnings surprise.
Zacks Rank: Humana carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating on earnings. The Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
The combination of Humana’s favorable Zacks Rank and positive Earnings ESP makes us confident of an earnings beat this season.
What is Driving the Better-Than-Expected Earnings?
Humana’s earnings will see an upside from higher enrollment in Medicare Advantage. Within the Medicare Advantage business, the prescription drug plan and the individual Medicare plan are likely to have seen membership growth and consequently revenue growth, partly offset by an expected decline in the group Medicare Advantage business.
Earnings might also benefit from an expected decline in the retail segment’s operating cost ratio as a result of membership growth and discretionary cost reduction.
However, results might be hampered by continued weakness in Humana’s individual commercial business, which remains challenged by volatility related to the start of the healthcare exchange program created under the Affordable Care Act and the morbidity of membership served under this relatively new program.
The bottom line will also see an adverse effect of suspended share buyback as a result of the proposed transaction with Aetna.
Excluding costs tied to the premium deficiency reserve, 2015 adjusted earnings will probably be $7.75 a share.
Other Stocks to Consider
Humana is not the only stock looking up this earnings season. We also expect an earnings beat from these three companies in the insurance sector:
Centene Corp CNC with an Earnings ESP of +2.35% and a Zacks Rank #1. The company is scheduled to release fourth-quarter earnings results on Feb 9.
Assurant Inc. AIZ has Earnings ESP of +0.65% and a Zacks Rank #3. The company is scheduled to release fourth-quarter earnings results on Feb 9.
AMN Healthcare Services Inc. AHS has an Earnings ESP of +2.44% and a Zacks Rank #1. The company is scheduled to release fourth-quarter earnings results on Feb 18.
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