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Humana Inc. (NYSE:HUM) reported first-quarter 2010 earnings on April 26, 2010 that surpassed the Zacks Consensus Estimate by 5 cents per share. The company has raised the earnings per share and revenue guidance for fiscal 2010. Consequently, we have witnessed a significant number of analysts following the health insurer in raising their estimates since the earnings release.

As per the recently passed health care reform, the Medicare Advantage program will be cut back, so some seniors will lose the extra benefits it provides. The Medicare Advantage program costs the government substantially more per person than regular Medicare. This is bad news for Humana, which is heavily reliant on the program. However, since most of the provisions of the bill do not come into effect until 2014, we should not expect dramatic changes right away.

Earnings Report Review

Humana earned $1.20 per share (excluding special items) in the first quarter of fiscal 2010, which was above the Zacks Consensus Estimate of $1.15. Results were helped by strong earnings from the Government segment, partially offset by weakness in the Commercial segment, whose membership fell 4% year-over-year.

Consolidated revenues for the reported quarter climbed 9.5% year over year to $8.44 billion. Revenues from premiums increased 9.2% year over year to $8.2 billion and administrative services fees climbed 8.6% year over year to $0.13 billion.

(Read our full coverage on this earnings report here: Humana Tops, Ups Guidance - Shares Dip)

Agreement of Estimate Revisions

Looking at the estimate revision trends for fiscal 2010 and 2011, it becomes clear that healthcare reform will not impact Humana negatively at the moment as analysts following the stock are aware of most of the provisions come into effect only as of 2014.

Five of the 7 analysts covering the stock for fiscal 2010 have raised their earnings estimates, while none have moved in the opposite direction over the last 30 days.

Also, for fiscal 2011, there is a definite positive bias in the estimate revisions observed in the last 30 days. Six of the 15 analysts following the stock for 2011 have raised their earnings estimates, while three have moved in the opposite direction for 2011. The significant number of upward estimate revisions for 2010 and 2011 indicates definite upward pressure on the performance of the stock in that time period.



Magnitude of Estimate Revisions

Estimates for fiscal 2010 have gone up by 26 cents over the last 30 days.



Our Recommendation

Humana currently has a Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our Neutral recommendation on Humana. The Neutral recommendation implies that the stock is expected to perform inline with the overall U.S. equity market over the next six to twelve months. Therefore, we advise investors to retain the stock over this time period.

Source: Earnings Scorecard: Humana