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Humana Earnings: Elevated Medical Utilization Keeps Near-Term View Within Previous Range

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Narrow-moat Humana HUM turned in strong third-quarter results and maintained its near- and intermediate-term outlook, despite growing challenges such as increasing medical utilization in its core Medicare market. Given the stable outlook, our $550 fair value estimate does not look likely to change materially at first glance.

In the quarter, Humana’s strong position in Medicare Advantage was on display, outpacing most peers with 15% MA membership growth year over year. Part of this outperformance relates to Humana’s strong MA star ratings, which remain much better than those of the other managed-care organizations we cover, including the scores announced in October 2023 that will affect marketing in 2024 and bonus payments in 2025. With these strong scores and other reputational factors attracting seniors to its MA plans, Humana looks likely to continue to delivering robust MA results relative to peers. Management expects MA member growth at least on pace with the industry in 2024, which it expects to be in the 6%-8% range.

While elevated medical utilization is constraining results in 2023 and may continue into 2024, the firm still aims to achieve its long-term earnings growth target of 11%-15% in both years. Management still aims for at least $28.25 of adjusted EPS in 2023, representing growth of at least 12% year over year. For 2024, management expects earnings growth to be within its long-term target range of 11%-15%, albeit probably on the low end of that range due to industrywide headwinds in MA and elevated medical utilization. Management still expects adjusted EPS of $37 in 2025, representing 14% growth compounded annually from 2022 to 2025, as recent new MA membership growth seasons and rises to more normalized margins by then. Our expectations remain roughly in line with this near- and intermediate-term guidance, and we are keeping our fair value estimate intact.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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