Humana's stock falls as earnings outlook to remain unclear for months

By Tomi Kilgore

Medicare Advantage membership growth outlook was raised by 50%, but 2025 EPS guidance was withdrawn

Shares of Humana Inc. reversed lower Wednesday, after the health insurer reported a quarterly profit that beat expectations by a wide margin and boosted its outlook for Medicare Advantage membership growth, but said uncertainty over the earnings outlook will continue for a while.

The big earnings beat was mostly driven by lower-than-planned administrative expenses, and the growth in Medicare Advantage membership was driven by higher sales of non-Dual-Eligible Special Needs Plans (DSNPs). A DSNP is sold to someone with both Medicare and Medicaid coverage.

The stock (HUM) sank 4.8% in morning trading, reversing an earlier gain of as much as 2.6%. The stock was in danger of extending its streak of one-day post-earnings declines to four quarters. The stock slumped an average of 8.8% after the past three quarterly reports.

The company withdrew its 2025 adjusted earnings-per-share growth outlook of $6 to $10, saying it was no longer "appropriate" given the Centers for Medicare and Medicaid Services' Medicare Advantage final rate notice announced earlier this month.

Chief Executive Bruce Broussard said on the post-earnings call with analysts that benefit levels, plan stability and options for seniors will be reduced by the MA rate notice, which was "not sufficient" to address the current medical cost trend environment.

"Our 2025 adjusted EPS growth outlook will be impacted by several variables to which we will not have clear visibility until later this year, including finalization of our MA bid pricing decisions, the continued evolution of the industry cost trends, and a level of competitor pricing actions in 2025 which will impact our net membership growth," Broussard said, according to a FactSet transcript.

For the first quarter, net income fell to $1.01 billion, or $6.11 a share from $1.61 billion, or $9.87 a share in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of $7.23 beat the FactSet consensus of $6.12.

That marked a stark change from the previous quarter, when the company reported a per-share loss that surprised analysts - the first quarterly adjusted loss in three years.

Total revenue grew 1.7% to $29.61 billion, above the FactSet consensus of $28.56 billion, amid higher-than-anticipated membership growth and slightly higher member-risk scores.

Operating cost ratio improved to 10.4% from 11.2% a year ago. And in terms of utilization, inpatient admissions per thousand were in line with expectations.

For 2024, the company raised its guidance for Medicare Advantage annual membership growth to approximately 150,000 from about 100,000.

Good news on the Medicare Advantage front was a welcome change for investors, who have been subjected to bad news in recent months on government-payment rates, coupled with soaring medical costs and slowing membership growth.

The company also reiterated its full-year outlook for adjusted EPS of $16.00.

Mizuho analyst Ann Hynes said the withdrawal of the 2025 guidance was not a surprise, given the rate notice and pricing limitations.

"Overall, we view the quarterly beat as a positive and likely higher than investor expectations," Hynes wrote in a note to clients.

The stock has tumbled 31.8% year to date, while the Health Care Select Sector SPDR ETF (XLV) has gained 3.2% and the S&P 500 index has advanced 6.5%.

-Tomi Kilgore

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04-24-24 1317ET

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