Shares of Humana (HUM) rose after the company reported better-than-expected Q3 results and adjusted its outlook. Despite a 46.5% year-over-year decline, Humana’s adjusted earnings reached $4.16 per share, beating the consensus estimate of $3.42.
Furthermore, the company’s adjusted revenues increased by 14.8% year-over-year to $29.3 billion in the third quarter. This surpassed Street estimates of $28.7 billion.
HUM Has Been Facing Revenue Headwinds
Insurers like Humana offering Medicare Advantage (MA) plans have recently encountered significant challenges, largely driven by increasing healthcare costs among older adults. Private insurers provide Medicare Advantage plans and receive a fixed payment from the U.S. government to manage healthcare for older individuals seeking additional benefits not covered by regular Medicare.
Recently, the government has lowered these payment rates, making it challenging for insurers to adjust effectively to higher usage trends. As a result, the company lowered its outlook twice this year, as costs within its MA segment surged beyond expectations.
To add to its woes, earlier this month, the company indicated a notable decline in membership for its leading MA plans for next year. This decline in enrollment has raised concerns about the insurer’s growth trajectory in the Medicare Advantage space. Additionally, a downgrade in the quality rating of one of Humana’s widely subscribed Medicare plans, representing almost half of its MA memberships, could potentially reduce revenue and bonus payments in 2026.
HUM Updates Earnings Guidance
Looking ahead, the company updated its FY24 adjusted earnings to at least $16 per share and reiterated the Insurance segment benefit ratio of around 90%. For reference, analysts were expecting the company to report earnings of $16.16 per share. Additionally, it now expects annual membership growth for individual Medicare Advantage plans to increase by 40,000 to 265,000 in FY24.
In the insurance industry, the insurance benefit ratio is the ratio of the expenses incurred when underwriting a policy to the revenues expected to be generated from it.
Is HUM a Good Stock to Buy?
Analysts remain sidelined about HUM stock, with a Hold consensus rating based on five Buys, 14 Holds, and one Sell. Over the past year, HUM has plunged by more than 40%, and the average HUM price target of $292.83 implies an upside potential of 9.4% from current levels. These analyst ratings are likely to change following HUM’s results today.
