The post-earnings decline in Humana (HUM) shares Wednesday was overdone, providing investors a chance so as to add to their positions within the Medicare Advantage-focused health insurer. The Club holding stays on solid ground after delivering a top- and bottom-line beat within the third quarter. Revenue for the three months ended Sept. 30 rose 15.9% to $26.42 billion, topping analyst estimates of $25.55 billion, in line with data provider LSEG, formerly referred to as Refinitiv. Adjusted earnings per share (EPS) of $7.78 exceeded the consensus estimate of $7.16. Humana’s companywide advantages expense ratio — also referred to as the medical loss ratio or MLR — got here in at 86.4% within the quarter, below the 86.7% projected by analysts, in line with FactSet. On this metric, lower is best. Nonetheless, Humana’s insurance segment MLR got here in higher than expected, which was a part of the explanation for the stock decline. HUM YTD mountain Humana YTD Humana’s quarter has some blemishes, but we see no reason to affix the parade of sellers who’re pushing the stock down greater than 5% to under $500 per share. “The story is on the right track, and I feel you purchase the stock,” Jim Cramer said during Wednesday’s Morning Meeting . “But you could have to grasp and respect sellers who’re all attempting to get out directly and do not even realize they’ve created a chance. It should not be sold down here. I could be a buyer of Humana at the tip of the day.” Bottom line Ultimately, Humana’s recent outperformance made the stock vulnerable to pullback on an imperfect report. Since its 2023 lows on July 13, Humana stock rallied greater than 23% compared with a roughly 7% slide within the S & P 500 over the identical stretch. More recently, Humana shares are up nearly 5% since Oct. 12 — the day before rival UnitedHealth Group ‘s (UNH) strong quarterly results — while the S & P 500 dropped 3.6%. We booked profits on our Humana position on Oct. 6, making good on our pledge to trim once the stock recovered to the $500-per-share level. One among the third-quarter blemishes: Humana experienced higher-than-anticipated medical costs within the period attributable to a rise in Covid-related hospital admissions, leading its medical loss ratio, or MLR, in that segment to are available above expectations. Given these recent trends, the corporate had to extend its full-year insurance MLR guidance to 87.5%, up from its prior goal range of 86.3% to 87.3%. Quarterly commentary Investors have been concerned about medical costs for Humana and its insurance peers since June, when UnitedHealth first warned a couple of rise in elective procedures — and shortly after, Humana said it was seeing similar trends. While second-quarter earnings assuaged the worst of Wall Street’s fears , Humana’s Q3 report Wednesday appears to have created some fresh jitters around medical costs, or utilization. The companywide advantages expense ratio of 86.4% could be seen on the quarterly earnings table. At the identical time, CFO Susan Diamond offered helpful context around what modified within the third quarter, explaining that the corporate didn’t expect to see an uptick in Covid admissions until the ultimate three months of the 12 months. The corporate decided to be “somewhat conservative” and leave its fourth-quarter Covid assumptions unchanged, Diamond said, despite the likelihood that a few of those costs were pulled forward into the third quarter. Humana has began to see Covid-related costs decline, Diamond said. Management’s initial commentary on 2024 earnings and Medicare Advantage membership growth — discussed in additional detail below — may have left investors wanting. While these developments usually are not ideal, we predict Humana also could also be offering a conservative view on 2024. That’s an comprehensible approach to take given it’s still early within the enrollment cycle, and next 12 months shall be one among transition for the corporate. CEO Bruce Broussard, who has led the insurer for a decade, is about to retire in late 2024, the corporate announced in October. His substitute, health-care veteran Jim Rechtin, is slated to affix Humana in January and work closely with Broussard on the leadership hand-off. Outlook Once more, Humana boosted its projections for 2023 individual Medicare Advantage membership growth — this time by 35,000 to roughly 860,000 members. That may mark a 19% increase compared with year-end enrollment levels in 2022. Humana’s initial 2023 guidance — put forth a 12 months ago — forecasted growth between 7.1% and eight.7%. Humana raised its full-year insurance segment MLR guidance to 87.5%, up from its prior goal between 86.3% to 87.3%. For months, the corporate had said it expected to are available near the highest of the old range, however the third-quarter medical cost trends prompted Wednesday’s upward revision. Remember, on this metric, lower is best. Humana maintained its full-year adjusted EPS projection of no less than $28.25 while lowering its EPS outlook on a generally acceptable accounting principles (GAAP) basis. The corporate now expects GAAP EPS of no less than $26.31, down from no less than $26.91. Waiting for 2024, Humana expects its Medicare Advantage membership growth to be “at or above industry growth level,” after significantly outperforming the industry in 2023. On the decision, outgoing CEO Broussard said industry growth estimates vary for 2024, but offered a variety between 6% to eight%. Humana also expects EPS growth in 2024 to fall on the lower end of its historical long-range 11%-to-15% goal. Wall Street had been projecting around 13% EPS growth in 2024, in line with FactSet. Capital allocation Humana still expects to purchase back about $1.5 billion value of stock in 2023, finance chief Diamond said on the earnings call. To date, repurchases have totaled roughly $1 billion, implying about $200 million value of buybacks between August’s earnings call and Wednesday’s call. (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’ll 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 a couple of 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 . 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On this photo illustration, Humana Inc. logo seen displayed on a tablet.
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The post-earnings decline in Humana (HUM) shares Wednesday was overdone, providing investors a chance so as to add to their positions within the Medicare Advantage-focused health insurer.
The Club holding stays on solid ground after delivering a top- and bottom-line beat within the third quarter.
