Earnings preview: Medicare Advantage to drive Humana’s Q4 growth

The quarterly performance of healthcare companies will be closely watched this season, considering the hectic M&A activity the sector has witnessed recently. After last year’s CVS-Aetna deal, the market is abuzz with rumors that Humana (HUM) could be a potential buyout target.

The health insurance giant is scheduled to report its fourth-quarter 2018 results at 6:30 am on Wednesday. Analysts’ consensus estimate for adjusted earnings is $2.52 per share, which represents a 23% year-over-year increase. Revenues are expected to grow 5.6% to $13.9 billion during the three-month period, aided by the strength of the Group & Specialty and Retail segments.

The steady uptick in Medicare Advantage numbers, the main growth driver, is expected to continue in the December quarter

The steady uptick in Medicare Advantage numbers, the main growth driver, is expected to continue in the December quarter, though it might be partially offset by an increase in outpatient spending in the retail segment and the reintroduction of health insurer fee.

While announcing the third-quarter results, the Louisville, Kentucky-based company had revised up its full-year adjusted earnings guidance by 25 basis points, apparently in anticipation of a stronger fourth-quarter performance than expected earlier. Adjusted earnings jumped 35% annually to $4.58 per share in the September-quarter when revenues moved up 7% to $14.2 billion.

CVS-Aetna merger promises a new dawn for healthcare sector

Humana’s rival CVS Health will be unveiling its quarterly numbers on February 20 before the market opens, with Wall Street forecasting a 10% growth in fourth-quarter earnings to $2.12 per share on revenues of $50.91 billion.

With an earnings beat almost certain, the general perception is that Humana’s stock will bounce back from its recent lows after the earnings report, which points to intense buying activity in the coming hours. While the consensus rating is buy, Cowen last week upgraded the stock from market perform to outperform, with the price target of $275.02. Last week, Cantor Fitzgerald reiterated its hold rating on Humana and set the target at $325.

Also see: Humana Q3 2018 Earnings Conference Call Transcript

Humana had a dream run at the stock market in the last decade, setting new records all along and hitting a new peak in November last year. Though the shares retreated and slipped to a nine-month low at the beginning of 2019, they recovered in the following weeks. The stock gained about 15% in the past twelve months.

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