Humana (HUM) reported second-quarter results Wednesday that were much better than feared, sending its stock price soaring and giving us the confidence to stick with the jilted health insurer. Revenue for the three months ended June 30 rose 13% year-over-year, to $26.75 billion, exceeding analysts’ estimates of $26.23 billion, according to Refinitiv. Adjusted earnings-per-share (EPS) of $8.94 slightly outpaced analysts’ forecasts of $8.82 a share, Refinitiv data showed. Humana’s companywide benefits expense ratio — also known as the medical loss ratio, or MLR — came in at 86.1%, under Wall Street’s 86.5% estimate, according to FactSet. Shares for Humana soared more than 5% Wednesday afternoon, to $482.70 apiece. Bottom line Humana delivered a sigh-of-relief report Wednesday. Not only did second-quarter numbers top expectations, but management offered assuring commentary on the worrisome medical-cost trends that torpedoed its stock price in mid-June . That one-two punch explains the more-than-5% jump in Humana shares, pushing the stock to its highest levels since June 14. That was the day sentiment soured on the Club holding and its health-insurance peers after UnitedHealth Group (UNH) warned that medical costs were rising as more older Americans completed elective procedures. Humana told investors on June 16 it was seeing a similar trend and, as a result, expected its benefits expense ratio to be toward the high end of its full-year guidance range of 86.3% and 87.3%. On Wednesday’s post-earnings conference call, CEO Bruce Broussard said higher-than-expected Medicare Advantage utilization has “stabilized” and remains on track with the updated outlook the company provided in June — potentially assuaging investors’ worst fears over the state of the industry. As a result, Broussard on Wednesday expressed confidence in the firm’s ability to grow earnings next year within its historical long-term target range of 11% to 15%, and toward its $37-per-share target in 2025. That sentiment should continue to bolster the stock, allowing Humana to claw back its losses since mid June — when we bought into the sell-off — and trade at around $512 a share. Outlook Humana raised its outlook for 2023 individual Medicare Advantage membership growth by 50,000 to roughly 825,000 members, representing an 18% increase compared with enrollment levels at the end of 2022. That growth rate is above the industry average and “far exceeds” the company’s initial expectations, Broussard said. Humana’s initial 2023 guidance — issued back in November — called for growth between 7.1% and 8.7%. Management did not provide any concrete membership targets for 2024, but Broussard contended the firm “has an opportunity for another robust year of membership growth” ahead. Humana reaffirmed its full-year adjusted EPS target of at least $28.25. However, management lowered its full-year EPS guidance to at least $26.91 per share on a Generally Acceptable Accounting Principles (GAAP) basis, down from a $27.88-per-share GAAP forecast from April. The company left unchanged its guidance of $4.5 billion for full-year cash flow, along with a capital expenditures outlook of $1.2 billion. Additionally, Humana reaffirmed its guidance on income from operations in both its insurance and CenterWell segments. Insurance contains its Medicare Advantage offerings, as well as its Medicaid plans in certain states. CenterWell is Humana’s home-health division. Capital allocation Humana CFO Susan Diamond said the company has capitalized on the “recent dislocation” in its stock price — i.e. the sell-off since June 14 — and now expects share repurchases this year to total $1.5 billion, a 50% increase from the $1 billion goal stated in April. Humana has repurchased $800 worth of stock since March, as part of the $3 billion buyback program approved by the company’s board of directors in February. So far this year, Humana bought back roughly 1.22 million shares, at an average price of $488.12 each, which is just a few dollars higher than where the stock traded Wednesday. (Jim Cramer’s Charitable Trust is long HUM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The Humana headquarters office stands in Louisville, Kentucky.
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Humana (HUM) reported second-quarter results Wednesday that were much better than feared, sending its stock price soaring and giving us the confidence to stick with the jilted health insurer.