Humana Q2 Earnings Beat on Medicare Advantage Strength

Humana Inc. HUM posted second-quarter 2024 adjusted earnings per share of $6.96, which surpassed the Zacks Consensus Estimate by 18.2%. However, the bottom line fell 22.1% year over year. 

Adjusted revenues improved 14.2% year over year to $29.4 billion. The top line beat the consensus mark by 2.6%. 

The quarterly results benefited from strong premium growth and increased service revenues, driven by expanding Medicare Advantage membership and an improved Primary Care business. However, the upside was partly offset by rising benefits expenses and a continued decline in the company's group commercial medical and standalone prescription drug plan membership. Nevertheless, a hiked 2024 guidance for individual Medicare Advantage membership growth seems commendable as Humana derives a major portion of its premiums from this business line.

Operational Update

Humana's total premiums of $28.1 billion advanced 10.4% year over year, higher than the Zacks Consensus Estimate of $27.2 billion and our estimate of $26.8 billion. 

Services revenues rose 12.5% year over year to $1.1 billion, beating the consensus mark of $988.5 million and our estimate of $984.7 million. Investment income was $298 million, up 8.8% year over year. The metric, however, lagged the consensus estimate of $304.7 million and our estimate of $363.7 million.

The benefits expense ratio deteriorated 270 basis points (bps) year over year to 89% due to increased Medicare Advantage medical cost trends. 

Total operating expenses escalated 12.2% year over year to $28.4 billion, higher than our estimate of $27.1 billion. The year-over-year increase was mainly due to elevated benefits expenses and operating costs. Meanwhile, the operating cost ratio improved 100 bps year over year to 10.8%, thanks to a boost in scale as a result of expanding Medicare Advantage membership coupled with administrative cost efficiencies.

HUM's operating income of $1.14 billion, which tumbled 20.5% year over year, outpaced our estimate of $1.06 billion.

Segmental Update

Insurance

The segment recorded adjusted revenues of $28.4 billion in the second quarter, which grew 14.1% year over year, attributable to improved per-member Medicare premiums, and membership growth in Medicare Advantage business and state-based contracts. 

Adjusted operating income dropped 29.5% year over year to $826 million. Adjusted benefits expense ratio of 89.4% deteriorated 280 bps year over year. Adjusted operating cost ratio improved 80 bps year over year to 8.4%. 

Total medical membership of the segment was 16.3 million as of Jun 30, 2024, which fell 4.8% year over year and came lower than the Zacks Consensus Estimate of 16.33 million.

CenterWell

The segment's revenues advanced 9.2% year over year to $4.9 billion, higher than the Zacks Consensus Estimate of $4.8 billion and our estimate of $4.7 billion. The unit was aided by an expanding value-based home care model and improved revenues derived from the company's Primary Care business. 

Adjusted operating income of $394 million rose 16.9% year over year. The operating cost ratio improved 60 bps year over year to 92%.

Financial Update (As of Jun 30, 2024)

Humana exited the second quarter with cash and cash equivalents of $5.5 billion, which climbed 17.2% from the 2023-end level. Total assets of $50.1 billion increased 6.4% from the figure at 2023 end. 

Long-term debt amounted to $11.7 billion, up 15% from the figure as of Dec 31, 2023. Short-term debt was $1.1 billion. Debt to capitalization came in at 43.6%, which deteriorated 260 bps from the prior-year comparble period.

Total stockholders' equity of $16.7 billion grew 2.5% from the 2023-end level. 

HUM generated net cash from operations of $1.6 billion in the first half of 2024, which declined more than six-fold from the prior-year comparable period.

Capital Deployment Update

Humana bought back shares worth $749.6 million till Jul 30, 2024. It had a leftover share repurchase capacity of $2.93 billion as of Jul 30, 2024.

2024 Outlook Updated

Adjusted EPS is projected to be $16, which indicates a 38.7% decline from the 2023 reported figure. GAAP EPS is estimated to be $12.81 compared with the earlier mentioned $13.93. The revised guidance implies a 36% fall from the 2023 reported figure. 

Revenues are forecast to be $116 billion, up from the prior stated $113 billion. The updated outlook indicates a 9% improvement from the 2023 reported figure. The Insurance segment's revenues are estimated to be $112 billion, up from the earlier mentioned $110 billion. Revenues of the CenterWell segment, on a GAAP basis, are expected to be $19 billion.

Management currently projects individual Medicare Advantage membership to witness growth of around 225,000 this year while the earlier view called for the metric to witness growth of roughly 150,000 members. Group Medicare Advantage membership is still expected to increase by around 45,000 members. Membership from the Medicare stand-alone PDP is estimated to decline by around 600,000. The previous view expected the metric to witness a membership decline of around 650,000. 

The benefit ratio of the Insurance unit continues to be expected around 90%. The consolidated GAAP operating cost ratio is still anticipated at approximately 11.4%. 

Cash flow from operations continues to be expected around $2 billion. Meanwhile, capital expenditures are still projected to be roughly $800 million.

Zacks Rank

Humana currently carries a Zacks Rank #3 (Hold).

Other Medical Sector Releases

Of the Medical sector players that have reported second-quarter 2024 results so far, the bottom-line results of Tenet Healthcare Corporation THC, Universal Health Services, Inc. UHS and The Ensign Group, Inc. ENSG beat the Zacks Consensus Estimate.

Tenet Healthcare reported second-quarter 2024 adjusted EPS of $2.31, which outpaced the Zacks Consensus Estimate by 22.2%. The bottom line soared 60.4% year over year.  Net operating revenues of $5.103 billion inched up 0.4% year over year. The top line beat the consensus mark by 2.5%. Adjusted net income of $226 million climbed 46.8% year over year. Adjusted EBITDA was $945 million, which advanced 12.1% year over year. Adjusted EBITDA margin of 18.5% improved 190 bps year over year.

The Hospital Operations and Services segment's net operating revenues tumbled 4.3% year over year to $3.96 billion. On a same-hospital basis, net patient service revenues advanced 8.2% year over year. The Ambulatory Care segment recorded net operating revenues of $1.14 billion, which rose 21.1% year over year. 

Universal Health reported second-quarter adjusted EPS of $4.31, which beat the Zacks Consensus Estimate by 27.9%. The bottom line rose 70.4% from the year-ago period. Net revenues amounted to $3.9 billion, which rose from $3.6 billion a year ago. The top line outpaced the consensus mark by 1.5%. Adjusted EBITDA net of NCI rose 35.9% year over year to $578.7 million. In the Acute Care Hospital Services unit, adjusted admissions (adjusted for outpatient activity) increased 3.4% year over year on a same-facility basis. Adjusted patient days rose 1.6% year over year. Net revenues stemming from Universal Health's acute care services improved 6.6% year over year on a same-facility basis.

In the Behavioral Health Care Services segment, adjusted admissions declined 0.4% year over year on a same-facility basis. Meanwhile, adjusted patient days increased 1.4% year over year, lower than our model estimate of 1.9%. On a same-facility basis, net revenues derived from the behavioral healthcare services of UHS increased 11% year over year. 

Ensign Group reported second-quarter 2024 EPS of $1.32, which beat the Zacks Consensus Estimate by 2.3%. The bottom line increased 13.8% year over year. Operating revenues of $1.04 billion improved 12.5% year over year. The top line outpaced the consensus mark by 2%. Ensign Group's adjusted net income grew 15.3% year over year to $76.4 million. 

Same-store occupancy improved 280 bps year over year while transitioning occupancy expanded 430 bps year over year. The Skilled Services segment's revenues rose 12.1% year over year to $991.3 million. Segment income of $122.2 million improved 4.4% year over year. Skilled nursing and campus operations of the segment totaled 272 and 29, respectively, at the second-quarter end. In the Standard Bearer unit, Rental revenues amounted to $23.4 million, which grew 17.3% year over year.

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