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Humana Inc.’s stock rallied 6% Wednesday after the health-insurance company topped earnings estimates for the second quarter and said the rush by seniors to get pandemic-delayed surgeries had abated.
The news sent stocks of rivals higher too, after they were beaten down in June by reports of a spike in knee and hip surgeries by Medicare Advantage customers that were raising costs for insurers.
Louisville, Ky.-based Humana
HUM,
posted per-share earnings of $7.66 for the quarter, up from $5.48 a year ago. Adjusted per-share earnings came to $8.94, ahead of the $8.76 FactSet consensus.
Revenue rose to $26.747 billion from $23.662 billion a year ago, also ahead of the $25.825 billion FactSet consensus.
The company said its benefits-expense ratio rose to 86.3% from 85.8% a year ago but was within the previously provided guidance range of 86.3% to 87.3% for 2023, which Humana reaffirmed. For insurers, a higher expense ratio means higher costs to provide insurance.
See also: Humana to exit employer business lines as they’re no longer a strategic fit
Humana said it now expects full-year adjusted EPS of at least $28.25, compared with a FactSet consensus of $28.29.
The company said it also expects Medicare Advantage growth of 50,000 to about 825,000 this year, or about 18% above 2022 levels, which it said was “meaningfully” higher than industry growth.
The company is sticking with its goal of 2025 adjusted EPS of $37, reflecting a 14% compound annual growth rate from 2022 to 2025.
On a call with analysts, Chief Executive Bruce D. Broussard said growth in 2023 has so far exceeded the company’s expectations.
“And as previously shared, [it] represents high-quality growth, supported by better-than-expected retention and a greater proportion of our new sales coming from competitors than initially planned,” he said, according to a FactSet transcript. ” We anticipate capturing 40% of the industry growth in 2023 and increasing our overall market share by 170 basis points to just over 20% at year-end.”
The company is expecting its Medicare Advantage growth to be sustained in 2024, he said, and is expecting 2024 adjusted EPS growth of 11% to 15%.
Mizuho analysts said the easing of claims was the highlight of the report.
“We believe if utilization trends continue to stabilize versus [second quarter 2023] levels, there is likely upside to 2023 guidance given the current guidance assumes elevated trends continue,” analyst Ann Hynes wrote in a note to clients.
Importantly, some of the elevated claims trend is built into 2024 guidance.
“Overall, we believe the updates regarding current utilization trends, core MA growth, and the initial 2024 adjusted EPS guidance are all incrementally positive,” she wrote.
Mizuho has a buy rating on the stock and a $550 price target, which is 14% above the current price.
Meanwhile, UnitedHealth Group Inc.’s
UNH,
stock was up 0.7%, Cigna Group’s
CI,
was up 1.9% and Elevance Health Inc.’s
ELV,
rose 1.5%.
Humana’s stock has fallen 5% in the year to date, while the S&P 500
SPX
has gained 19%.
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