Humana's stock falls to four-year low as company cuts 2024 guidance amid soaring medical costs

By Ciara Linnane

Managed care company's full-year EPS guidance is about half what analysts were expecting

Humana Inc.'s stock fell 13% on Thursday, after the managed care company's quarterly loss widened amid soaring medical costs and the company cut its 2024 profit guidance to almost half what analysts were forecasting.

The stock is now down for five of the last six days, falling to its lowest level in more than four years, and is also among the leading decliners in the S&P 500 index on Thursday. Stocks of the company's rivals also moved lower with UnitedHealth Group Inc. down 4.7%, Cigna Group (CI) down 3.8% and Elevance Health Inc. (ELV) down 1.6%.

Louisville, Ky.-based Humana (HUM) said it now expects 2024 per-share earnings of about $14.87 and adjusted EPS of about $16.00, while FactSet is expecting $29.14. The company is expecting higher Medicare Advantage costs that battered earnings in the fourth quarter to persist through the year.

Humana posted a loss of $491 million, or $4.42 a share, for the fourth quarter, wider than the loss of $71 million, or 12 cents a share, posted in the year-earlier period.

The company's adjusted per-share loss came to 11 cents, while FactSet was expecting EPS of 89 cents.

Revenue rose to $26.462 billion from $22.439 billion, ahead of the $25.491 billion FactSet consensus.

The loss reflects additional increases in Medicare Advantage cost trends, which rose on higher-than-expected inpatient utilization, mostly in November and December, along with an increase in non-inpatient trends. Costs have been rising over the past year as many patients have started to have procedures that were delayed during the COVID-19 pandemic.

Humana and rivals including UnitedHealth Group Inc. (UNH) have invested generously in the government's Medicare Advantage program for seniors.

Earlier in January, Humana warned that its fourth-quarter medical loss ratio, a measure of premiums paid to cover medical expenses, had climbed to 91.4%, above the 89% expected by analysts.

The company also warned of slower-than-expected Medicare Advantage enrollment growth. The company said it hadn't been able to offset those expenses with administrative cost cuts and productivity improvements "due to the recency and significance of the latest emerging trends."

On Thursday, Humana confirmed it expects Medicare Advantage annual membership growth of about 100,000, or 1.8%.

"We are disappointed in the update provided today," Chief Executive Bruce Dale Broussard told analysts on the earnings call, according to a FactSet transcript.

"The Medicare Advantage sector is navigating a complex and dynamic period of change as we are all working through significant regulatory changes, while also absorbing unprecedented increases in medical cost trends. The increase in utilization that emerged late in the fourth quarter was a significant deviation from an already elevated level impacting the industry."

Mizuho said the guidance is likely a worst-case scenario and that it does not expect trends to persist through the year, given the fourth quarter is traditionally a seasonally strong one for healthcare procedures and the lowest earnings period for managed care companies.

"That sets the stocks up for beats and raises throughout 2024 and also provides the company some cushion to navigate through the first year of the three-year phase-in of the Medicare Advantage coding adjustments," analyst Ann Hynes wrote in a note to clients.

Broussard said the company currently expects $6 to $10 growth in adjusted EPS in 2025, which equates to a range of $22 to $26. The current FactSet consensus for 2025 is for EPS of $34.82.

Chief Financial Officer Susan Diamond said 2025 will likely be a "repositioning" year, "where we may see lower than industry average growth depending on the level of competitor pricing actions, but we would feel that we would be repositioning for sustainable growth on a go-forward basis in terms of membership at a more sustainable margin over the long term."

But she acknowledged that the trend that set in in November had continued through the first two weeks of January.

UnitedHealth shares also tumbled last week after the company reported rising medical costs relative to premium revenue in the fourth quarter.

Humana's stock has fallen 30% in the last 12 months, while the S&P 500 has gained 22%.

-Ciara Linnane

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01-26-24 0743ET

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