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Humana (HUM) Q1 Earnings & Revenues Beat Estimates, SurgeY/Y

Zacks Equity Research

Humana Inc.’s HUM first-quarter 2019 operating earnings per share of $4.48 beat the Zacks Consensus Estimate of $4.30 by 4.2%. The bottom line also improved 33.3% year over year. This upside can primarily be attributed to solid revenues and Medicare Advantage membership growth.

Operational Update

Revenues of $16.1 billion were up nearly 2% in the first quarter. Moreover, the top line surpassed the Zacks Consensus Estimate by 12.8%.

Adjusted consolidated pre-tax income of $803 million increased 17.4%on the back of lower-than-expected utilization in the individual Medicare Advantage business.

Benefit expense ratio expanded 130 basis points to 86.2% in the quarter.

Humana Inc. Price, Consensus and EPS Surprise

Humana Inc. Price, Consensus and EPS Surprise | Humana Inc. Quote

Segmental Results


Revenues from the Retail segment were $14.01 billion, up 16% year over year. This can primarily be attributed to robust revenues drawn from the company’s individual and group Medicare Advantage membership strength, solid per member premiums plus a rise in the state-based contracts membership.

Benefit ratio of 88.3% expanded 90 bps year over year, primarily because of the suspension of HIF in 2019 as well as the negative impact of its higher-than-expected individual Medicare Advantage membership growth.

The segment's operating cost ratio of 8.2% contracted 190 bps year over year. This was mainly owing to the suspension of HIF and operating cost efficiencies.

Group and Specialty

Revenues from the Group and Specialty segment were $1.89 billion, down 4% from the prior-year quarter due to a reduction in its fully-insured group commercial and specialty membership, impact of the contractual incentives and adjustments related to the previous TRICARE as well as lower premium revenues.

Benefit ratio expanded 320 bps year over year to 76.4%, induced by an unfavorable prior-period development in the first quarter, suspension of health insurance industry fee (HIF) and membership mix.

Operating cost ratio deteriorated 170 bps year over year to 21.9%.

Healthcare Services

Revenues of $6.10 billion increased 8% year over year, primarily owing to Medicare Advantage membership growth.

Operating cost ratio increased 40 bps year over year to 96.6% due to investments in the company’s provider services business as well as a change in mix of the pharmacy spend.

Individual Commercial

Humana exited this business effective Jan 1, 2018 and consequently, the result reflects its run-out.

Financial Update

As of Mar 31, 2019, the company had cash, cash equivalents and investment securities of $14.18 billion, up 11% from the level at 2018end.
Debt-to-total capitalization as of Mar 31, 2019 was 36%, down 140 bps from Dec 31, 2018.

Operating cash outflow totaled $896 million in the first quarter, up 155.3% year over year.

Capital Deployment

The company paid cash dividends worth $68 million in the first quarter of 2019.

Last November, it entered into an agreement to affect a $750-million accelerated share repurchase (ASR) program under its current share repurchase authorization. During the first quarter, the company bought back around 2,541,100 of its outstanding shares at average price of $295.15.

2019 Guidance

For 2019, Humana now expects adjusted EPS in the range of $17.25- $17.5, up from the prior projection of $17-$17.5.

Zacks Rank

Humana carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other players from the medical sector, which already reported first-quarter earnings, the bottom-line figures of Anthem Inc. ANTM, Centene Corporation CNC and UnitedHealth Group Inc. UNH beat the respective Zacks Consensus Estimates.

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