Humana Reports In-Line, Raises Outlook

Feb. 1.10 | About: Humana Inc. (HUM)

Humana Inc. (NYSE:HUN) reported fourth quarter and full-year results for fiscal 2009.

Quarterly Results

Humana reported fourth-quarter earnings of $1.48 per share, in line with the Zacks Consensus Estimate. The company earned $1.03 per share for the year-ago quarter. Results were helped by lower prescription drug plan (PDP) claim expenses in the reported quarter.

Consolidated revenues for the quarter came in at $7.63 billion compared to $7.49 billion in the year-ago quarter, up approximately 2% with total premium and administrative service fees rising 2% from the prior-year quarter primarily because of increases in both average membership and per-member premiums for the company’s Medicare Advantage products.

The latest quarter’s consolidated benefit ratio, which reflects the percentage of benefit expenses in premium revenues, decreased to 81.8% from 83.3% in the prior-year quarter. The decrease of 150 basis points was primarily attributable to a 240 basis points decrease in the Government Segment benefit ratio, partially offset by the rise of 130 basis points in the Commercial Segment benefit ratio.

Humana's Commercial segment continued to perform badly and posted a pre-tax loss of $$53.6 million, driven by higher benefit expenses as a percentage of premiums coupled with increased selling, general & administrative expenses year-on-year, which were partially offset by higher net investment income.

Commercial membership as of Dec 31, 2009 stood at 3,410,800 reflecting a 6% year-over-year decline. The decrease was primarily attributable to the economic downturn and the resultant rise in unemployment across several of Humana's fully-insured group medical lines of business. Commercial segment premiums and administrative fees fell 2% in the quarter to $1.88 billion.

Earnings from the Government segment rose 69.2% to $452.3 million. The increase was precipitated by lower claim expenses in its Medicare drug plans, a 6% rise in average Medicare Advantage membership and the introduction of member premiums for most of the company's Medicare Advantage products apart from higher net investment income.

Medicare Advantage membership stood at 1,508,500 members as of Dec 31, 2009, reflecting a 5% year-over-year increase. Favorable operating results caused the debt-to-capitalization ratio to stand at 22.5% as of Dec 31, 2009 from 30.3% as of Dec 31, 2008.

Yearly Results

For full-year 2009, the company earned $6.15, which was below the Zacks Consensus Estimate by a penny. The company earned $3.83 per share in fiscal 2008. Annual revenue climbed 7% to $31 billion from $28.95 billion.

The Government segment performed impressively in the year with pretax income for the segment coming in at $1.50 billion as against $785.2 million in fiscal 2008. However, the Commercial segment performed badly and posted a pre-tax gain of $104.2 million as against $207.6 million in fiscal 2008. The lower earnings from the segment were driven by higher benefit expenses as a percentage of premiums coupled with lower average medical membership, which was partially offset by increased net investment income.

The company ended the year with cash, cash equivalents, and investment securities of $9.11 billion, compared to $7.19 billion at Dec 31, 2008.


For the first-quarter of 2010, Humana expects to earn between $1.10 and $1.20 per share. The Zacks Consensus Estimate for the next quarter is $1.05. Earnings estimates for the next quarter have been moving up with 3 of the 7 analysts following the stock raising their estimates over the last 30 days. There has been no downward revision of earnings estimate during the last 30 days.

For fiscal 2010, the company has raised its outlook. It now expects to earn between of $5.15 - $5.35 per share, compared to its previous guidance of $5.05 to $5.25 per share. The Zacks Consensus Estimate for fiscal 2010 is $5.40. Four of the nineteen analysts following the stock have raised their earnings estimates for fiscal 2010.

There have been no downward revisions of earnings estimate during the last 30 days. Furthermore, the company expects consolidated revenues to come in the range of $33 billion and $34 billion in 2010, compared to the prior outlook of $32 billion - $34 billion.

Currently, we are Neutral on Humana.