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A month has gone by since the last earnings report for Humana (HUM). Shares have added about 0.9% 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 drivers.
Humana's Q4 Loss Narrower Than Expected, Tumble Y/Y
Humana's fourth-quarter 2020 operating loss per share of $2.30 is lower than the Zacks Consensus Estimate of a loss of $2.35. This was on account of steep COVID-related treatment and testing costs, high marketing expenses related to the Medicare Advantage Annual Election Period (AEP) as well as continuous relief efforts and strategic measures in its integrated care delivery models. The bottom line, however, came against the year-ago quarter’s earnings per share of $2.28.
Revenues of $19 billion were up 17% year over year. Moreover, the top line surpassed the Zacks Consensus Estimate by 1.3% on the back of better premium revenues from Medicare Advantage along with improved membership in state-based contracts and an increase in per member Medicare Advantage premiums. Benefit ratio expanded 170 basis points (bps) to 88.3%. Operating cost ratio expanded 310 bps to 16.3%.Total expenses shot up 21.8% year over year due to higher benefits and operating costs.
Revenues from the Retail segment were $16.83 billion, up 18% year over year. This can primarily be attributed to premium rise owing to MedicareAdvantage along with state-based contracts membership growth and higher per member Medicare Advantage premiums. Benefit ratio of 87% expanded 70 bps year over year due to meaningful COVID-19 treatment and testing costs, pandemic-related relief efforts along with strategic measures taken in the integrated care delivery model. Shift in Medicare membership mix and growth in Medicare Advantage members are other reasons. The segment’s operating cost ratio of 14% expanded 240 bps year over year due to reinstatement of the non-deductible health insurance industry fee in 2020 along with COVID-related costs. Other reasons are strategic initiatives in its integrated care delivery model and high costs related to Medicare AEP.
Group and Specialty
Revenues from the Group and Specialty segment were $1.79 billion, down 4% from the prior-year quarter due to reduction in fully-insured group commercial membership. Benefit ratio expanded 910 bps year over year to 104.3% due to expenses involving the ongoing pandemic relief, strategic initiatives in the business as well as COVID-related treatment and testing expenses. Operating cost ratio expanded 570 bps year over year to 28.1%.
Revenues of $7.29 billion increased 9% year over year, primarily owing to Medicare Advantage membership growth and additional pharmacy revenues associated with the Enclara Healthcare buyout. Operating cost ratio expanded 100 bps year over year to 97.8% due to coronavirus-related administrative costs as well as expenses incurred in the pharmacy business for timely delivery of prescriptions. Additional investment in the segment’s provider business associated with marketing and AEP measures also bothers.
As of Dec 31, 2020, the company had cash and cash equivalents, and investment securities of $17.2 billion, up 14.6% from the level at 2019 end.
Debt-to-total capitalization as of Dec 31, 2020 was 32.7%, expanding 70 bps from the level as of Dec 31, 2019. As of Dec 31, 2020, cash flows provided by operating activities came in at $5.6 billion, up 6.7% year over year.
In December, Humana inked two separate deals with two third-party financial institutions to effect an aggregate $1.75 billion ASR program under its authorization. The company repurchased around 3,829,400 shares in the quarter under this plan. It paid out cash dividends worth $84 million in the period.
After announcing fourth-quarter results, the company issued its 2021 guidance. Adjusted EPS is expected in the range of $21.25-$21.75.For the full year, the company expects individual Medicare Advantage membership growth of around 425,000-475,000 members.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 16.72% due to these changes.
At this time, 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 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward 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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