It has been about a month since the last earnings report for Humana (HUM). Shares have added about 0.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Humana Q1 Earnings & Revenues Beat Estimates, Surge Y/Y
Humana Inc.’s 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.
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.
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%.
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.
Humana exited this business effective Jan 1, 2018 and consequently, the result reflects its run-out.
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.
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.
For 2019, Humana now expects adjusted EPS in the range of $17.25- $17.5, up from the prior projection of $17-$17.5.
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 10.47% due to these changes.
Currently, Humana has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 A. 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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