Health insurer Humana Inc. NYSE: HUM reported its Q1 2024 earnings report to a less dramatic reaction than it got from its Q4 2023 report, causing shares to tumble more than 13%. Investors are still reeling over its vastly lowered EPS guidance stretching out to 2025. The so-called guidance provided no clarity except that EPS guidance will be even worse than the $6.00 to $10.00 guidance.
Outlook Gets Foggier in 2025
Despite the rise in inpatient utilization costs, the medical sector giant continues to stick it out with Medicare Advantage (MA) plans as it grew its membership by 50,000 members. Humana has a target of adding 150,000 new MA members in 2024, which would be a 2.8% growth in membership.
In the past, Humana has been able to bounce back from fundamental adversities, the question is whether it can recover from a structural change in its most exposed segment. The conference call did nothing to alleviate investor concern over 2025 EPS estimates, which will have to be lowered, but investors will not know by how much until later in the year.
Recapping the Prior EPS Shocker
On January 15, 2024, Humana shocked investors and analysts with a 2024 EPS outlook cut to $16.00 from the $29.16 analyst expectations. Even worse, the company cut its 2025 Adjusted EPS outlook to just $6.00 to $10.00, falling far below its previous $37.00 guidance. The extreme haircut was attributed to skyrocketing cost pressure driven by a surge in MA inpatient utilization from November through December 2023.
The exceptionally profitable MA plan business was blindsided with cost pressures, turning the value proposition upside down. Similar warnings then came from UnitedHealth Group Inc. NYSE: UNH and CVS Health Co. NYSE: CVS-owned Aetna, and Cigna Co. NYSE: CI sold off its MA business. The fear is that this could be the beginning of the end of MA plan prosperity for insurers.
Daily Ascending Triangle Breakdown
Heading into its Q1 2024 earnings report, HUM shares had optimistic sentiment indicated by the daily ascending triangle pattern comprised of higher lows on pullbacks. The ascending trendline formed at $299.23 on April 2, 2024. The flat-top upper trendline was at $334.54. However, the breakout attempt was stuffed and reversed into a breakdown upon its Q1 2024 earnings release. HUM broke down through its ascending trendline. The daily relative strength index (RSI) reversed sharply around the 50-band as it headed toward the oversold 30-band. Pullback support levels are at $299.23, $290.47, $280.72 and $269.18.
Q1 2024 Earnings Not As Bad as Feared
Humana released its Q1 2024 EPS of $7.23, beating consensus estimates by $1.11. Revenues rose 10.7% YoY to $29.61 billion, beating the $28.52 billion consensus estimates. The company raised its 2024 outlook for MA membership growth by 50,000 for annual growth to 150,000 or 2.8%.
Revised 2024 Guidance
Humana lowered its full-year 2024 GAAP EPS to $13.93, down from $14.87. For the full year 2024, the adjusted EPS was affirmed at $16.00 and the insurance segment benefit ratio was affirmed at nearly 90%. The company continued organic expansion in Medicaid with contract wins in Texas, Florida and Virginia.
Less Than Insightful CEO Insights
The earnings conference call left more questions than answers. Humana CEO Bruce Broussard acknowledged the current environment will disrupt the industry in the short term. However, he still believes in strong core fundamentals and a growth outlook for the MA industry in the long term. Broussard specifically focused on 2025 as he expects benefit levels, choice for seniors and planned stability to be impacted negatively by the final MA rate notice. Broussard claims it's not sufficient to address the current medical cost trend backdrop and regulatory changes.
How Much Will the 2025 Adjusted EPS Guidance Be Cut?
Humana Today
$296.38 +2.41 (+0.82%) (As of 11/21/2024 ET)
- 52-Week Range
- $213.31
▼
$527.18 - Dividend Yield
- 1.19%
- P/E Ratio
- 26.25
- Price Target
- $315.86
With the significant difference between the final rate notice and previous assumptions for funding, they no longer believe the $6.00 to $10.00 adjusted EPS is the right target for 2025. Broussard feels the industry will adjust to the current funding over time to deliver strong top-line growth, which will normalize at a margin of at least 3%. Humana remains committed to margin recovery and growing profits through pricing action for years to come. Broussard thinks the 2025 adjusted EPS outlook will not be clearly visible until later in the year due to several variables, including the finalization of its MA bid pricing decisions, level of competitor pricing actions and evolution of industry cost trends.
Shareholders are Left in Limbo
Broussard concluded, “We appreciate your desire for more detail regarding our outlook for 2025, and we will, therefore, provide an update on our bid strategy post-bid finalization, with further updates in the fall once we have visibility into our competitor plans and expected membership implications.”
Humana analyst ratings and price targets are at MarketBeat.
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