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Humana raises 2019 profit forecast on back of second-quarter beat

Key Points
  • Humana raised its 2019 profit forecast on Wednesday and posted second-quarter earnings ahead of Street estimates.
  • The health insurer reined in costs and recorded higher revenue from its unit that sells Medicare Advantage health plans.
  • Humana said it is seeing the highest membership growth in its government-backed Medicare Advantage plans for individuals in the last decade.
The Humana headquarters office stands in Louisville, Kentucky.
Ty Wright | Bloomberg | Getty Images

Health insurer Humana raised its 2019 profit forecast on Wednesday and posted second-quarter earnings ahead of Street estimates, as it reined in costs and recorded higher revenue from its unit that sells Medicare Advantage health plans.

Shares rose 3.7% to $295 in premarket trading.

Humana said it is seeing the highest membership growth in its government-backed Medicare Advantage plans for individuals in the last decade. Still, health insurers remain under pressure in the face of political uncertainty ahead of the 2020 U.S. presidential election.

Although the Trump administration recently ended plans that would have required insurers to pass on rebates to Medicare patients, a positive for the sector, Humana previously flagged another factor that will hit 2020 profit growth - the return of an industry-wide fee next year.

On Wednesday, Chief Financial Officer Brian Kane said membership growth in Medicare Advantage plans lessens the expected impact from issues in 2020 and will allow Humana to make additional strategic investments this year.

The company raised its 2019 forecast for growth in individual members for Medicare Advantage plans to between 480,000 and 500,000, from a prior estimate of 415,000 to 440,000 members.

As of June 30, the number of members enrolled in Humana's Medicare Advantage plans for individuals was 3,484,500, a 15% rise from last year.

The company's adjusted consolidated benefits expense ratio, the percentage of premiums spent on claims, was 84.4% versus 84.3% last year. Eight analysts polled by Refinitiv IBES had estimated 85.69%. A lower ratio is better for health insurers.

Stephens analyst Scott Fidel said the strength in Humana's consolidated benefits expense ratio is "quite differentiated" from peers, who have expressed pressures from their businesses that sell Medicaid health plans, a relatively smaller unit for Humana.

Humana expects 2019 adjusted earnings of $17.60 per share, from a prior range of $17.25 to $17.50.

Revenue from Humana's retail unit, which includes Medicare plans, rose about 18% to $14.16 billion.

Humana said net income rose nearly five-fold to $940 million, or $6.94 per share, in the quarter ended June 30. The company recorded a $790 million charge in the year-ago quarter.

Excluding items, Humana earned $6.05 per share, beating the average analyst estimate of $5.31 per share.

Quarterly revenue rose 13.9% to $16.25 billion, above estimates of $15.93 billion.

The company said it would begin a $1 billion accelerated share repurchase program after the bell on Wednesday.

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