Humana Inc. HUM reported first-quarter 2023 adjusted earnings per share (EPS) of $9.38, beating the Zacks Consensus Estimate by 1.4%while missing our estimate of $9.78. The bottom line climbed 16.7% year over year.
The quarterly results benefited from growing premiums coupled with solid segmental performances. Favorable trends of inpatient utilization added to the positives. However, the upside was partly hurt by an elevated operating expense level.
Revenues of Humana amounted to $26,742 million, surpassing the Zacks Consensus Estimate by 1.6% and our estimate of $26,397 million. The metric rose 11.6% year over year in the quarter under review.The improvement came on the back of membership growth due to its individual Medicare Advantage business and state-based contract wins. Improved per-member individual Medicare Advantage premiums also contributed to the quarterly results.
Humana Inc. Price, Consensus and EPS Surprise
Humana Inc. price-consensus-eps-surprise-chart | Humana Inc. Quote
Total premiums of Humana grew 12.5% year over year to $25,550 million. The figure outpaced the Zacks Consensus Estimate of $25,104 million and our estimate of $25,110 million.
Revenues from services came in at $999 million, which dropped 21% year over year in the first quarter. Investment income of $193 million compared favorably with the prior-year quarter’s investment income of meager $3 million due to a high-interest rate environment.
The benefits expense ratio improved 90 basis points (bps) year over year to 85.5%on account of improved Medicare Advantage premium yield and lower covid-19 inpatient utilization in the quarter. The operating cost ratio of 11.2% improved 80 bps year over year, thanks to the divestiture of Humana’s 60% ownership stake in Kindred at Home (KAH) Hospice operations in 2022.
Total operating expenses escalated 10.3% year over year to $25,023 million, higher than our estimate of $24,676.1 million.This was due to an increase in benefits, operating costs, and depreciation and amortization.
Humana reported a net income of $1,238 million, higher than the prior-year quarter’s figure of $930 million.
The segment recorded revenues of $25,903 million, which advanced 12.8% year over year in the first quarter on the back of growing membership across its individual Medicare Advantage business and state-based contracts.
Adjusted earnings came in at $1,252 million in the quarter under review compared with $964 million reported in the prior-year quarter.The benefits expense ratio improved 80 bps year over year to 86.1%. The operating cost ratio of 9.4% deteriorated 30 bps year over year due to higher commissions paid to brokers during the 2023 Annual Election Period and Open Enrollment Period.
Total medical membership of the segment came in at 17.2 million as of Mar 31, 2023, which inched up 0.1% year over year.
The segment’s revenues of $4,505 million increased 3.2% year over year in the first quarter,attributable to improving membership growth within HUM’s individual Medicare Advantage business and improved pharmacy revenues coupled with growing revenues from its provider business.
Operating income of $330 million tumbled 10.8% year over year.The segment’s adjusted EBITDA slid 9.1% year over year to $379 million in the quarter under review.
The operating cost ratio of 91.6% deteriorated 110 bps year over year.
Financial Update (as of Mar 31, 2023)
Humana exited the first quarter with cash and cash equivalents of $13,735 million, which soared from $5,061 million at 2022-end.Total assets of $54,776 million increased from $43,055 at 2022-end.
HUM’s long-term debt totaled $9,743 million, up from $9,034 as of Dec 31, 2022.Short-term debt amounted to $1,867 million. Debt to total capitalization improved 90 bps year over year to 41.1% at the first-quarter end.
Total stockholders’ equity of $16,577 million rose from $15,311 at 2022-end.
Net cash provided by operating activities amounted to $6,687 million in the first quarter, which is way higher than the prior quarter’s figure of $302 million.
Capital Deployment Update
Humana bought back shares worth $66.7 million in the first quarter. It had an excess share repurchase capacity of $2.8 billion as of Apr 25, 2023. HUM also paid out dividends of $100 million to its shareholders during the quarter under review.
The guidance for HUM’s revenues is revised upward to be within $104.4-$106.4 billion, the mid-point of which indicates an improvement of 13.5% from the 2022 figure of $92.9 billion.
Adjusted EPS is revised upward and is estimated to be a minimum of $28.25, which suggests minimum growth of 11.9% from the 2022 figure of $25.24.
Revenues from the Insurance segment are projected within $101.2-$102.7 billion, the mid-point of which indicates a 14.8% rise from the 2022 figure of $88.8 billion.The CenterWell segment’s revenues are forecasted between $18 billion and $18.5 billion, the mid-point of which suggests 5.5% growth from the 2022 figure of $17.3 billion.
Management anticipates individual Medicare Advantage membership to witness a minimum membership growth of 775,000 in 2023, suggesting growth of 17% from the 2022-end figure.
Group Medicare Advantage membership is likely to decrease by around 60,000, while the same from the Medicare stand-alone prescription drug plan is estimated to decline by around 800,000 members.
The benefit ratio of the Insurance unit is estimated at 86.3-87.3% in 2023. The consolidated operating cost ratio is expected at 11.6%-12.6%.
Cash flow from operations is forecasted at around $4.5 billion this year, while capital expenditures are projected at $1.2 billion.
Humana remains optimistic to fulfil its target of attaining adjusted earnings of $37 per share within 2025.
Humana currently carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Medical Sector Release
Of the Medical sector players that have reported first-quarter results so far, the bottom lines of Elevance Health, Inc. ELV and UnitedHealth Group Incorporated UNH beat the Zacks Consensus Estimate, while the same for Centene Corporation CNC missed the Zacks Consensus Estimate.
Elevance Health reported first-quarter 2023 earnings of $9.46 per share, which beat the Zacks Consensus Estimate of $9.26 and our estimate of $9.22. Additionally, the bottom line advanced 15.5% year over year.
ELV’s operating revenues improved 10.6% year over year to $41,898 million in the quarter under review. The top line beat the consensus mark by 2.5% and exceeded our estimate of $40,766.5 million.
UnitedHealth Group reported first-quarter 2023 adjusted earnings of $6.26 per share, which beat the Zacks Consensus Estimate of $6.24 and our estimate of $6.17. The bottom line improved from the $5.49 per share reported a year ago.
The company’s quarterly performance was driven by sustained membership growth in its UnitedHealthcare business. Strong expansion in value-based arrangements in the Optum Health segment also contributed to the upside, partly offset by elevated operating costs.
Centene Corporation reported first-quarter 2023 adjusted EPS of $2.11, which lagged the Zacks Consensus Estimate by 5.4%. However, the bottom line advanced 15.3% year over year.
Revenues of CNC amounted to $38,889 million, which improved 4.6% year over year. The top line outpaced the consensus mark by 7.1%.
The quarterly results took a hit from escalating medical costs. Nevertheless, the downside was partly offset by a growing premium base stemming from solid membership growth within most of its business lines and numerous contract wins.
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