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Will Humana's (HUM) Q1 Earnings Beat on Insurance Unit Strength?

Humana Inc. HUM is set to continue its earnings beat streak in the first quarter of 2023, the results of which are expected to be released on Apr 26, before the opening bell.

What Do the Estimates Say?

The Zacks Consensus Estimate for first-quarter earnings per share of $9.25 suggests an increase of 15.1% from the prior-year reported number. Our estimate for first-quarter earnings of $9.78 per share suggests a 21.7% year-over-year increase. Humana beat the consensus estimate in all the prior four quarters, the average being 13%. This is depicted in the graph below:

Humana Inc. Price, Consensus and EPS Surprise

 

Humana Inc. Price, Consensus and EPS Surprise
Humana Inc. Price, Consensus and EPS Surprise

Humana Inc. price-consensus-eps-surprise-chart | Humana Inc. Quote

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The Zacks Consensus Estimate for first-quarter revenues of $26.3 billion indicates a 9.8% increase from the year-ago reported figure, whereas our estimate suggests a 10.1% rise.

What the Quantitative Model Suggests

Our proven model predicts an earnings beat for Humana this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Earnings ESP for the company is +0.15%. The Most Accurate Estimate is pegged at $9.26 per share, higher than the Zacks Consensus Estimate of $9.25. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Humana currently carries a Zacks Rank #2.

Before we get into what to expect in the to-be-reported quarter in detail, let’s see how the company performed in the last quarter.

Q4 Earnings Rewind

In the last reported quarter, the company reported adjusted earnings per share of $1.62, beating the Zacks Consensus Estimate by 11% due to growing premiums, coupled with solid segmental performances, membership growth stemming from its individual Medicare Advantage business and state-based contract wins. However, the upside was partly hurt by an elevated operating expense level.

Now, let’s see how things have shaped up prior to the first-quarter 2023 earnings announcement.

Factors Driving Better-Than-Expected Q1 Earnings

In the first quarter, Humana’s revenues are expected to have benefited from improved premiums, resulting from its well-devised Medicare Advantage and Medicaid plans and higher investment income. Several contract wins and an expanding customer base are likely to have contributed to growing premiums.

Both the Zacks Consensus Estimate and our estimate for HUM’s first-quarter premiums indicate a 10.5% improvement from the prior-year quarter’s reported figure. The consensus mark for its Medicaid and other premiums predicts a 24.7% rise from the prior-year quarter’s reported figure, whereas our estimate implies a 19% increase.

The Insurance segment is likely to have been driven by a growing membership. Our estimate for the segment’s pretax income is pegged at $1,258.6 million, indicating a 26.4% increase from the prior-year quarter’s reported figure. This is expected to have positioned the company for a year-over-year increase and an earnings beat in the first quarter.

The CenterWell segment is expected to have gained on a strong pharmacy business. Our estimate for the segment’s pretax income is pegged at $594.9 million, indicating a 60.8% increase from the prior-year quarter’s reported figure.

However, continued investments in marketing and distribution are likely to have escalated costs for Humana, which, in turn, are likely to have squeezed its margins in the first quarter. Our estimate for total operating expenses indicates an 8.8% year-over-year increase.

Nevertheless, the downside is likely to have been partly offset by lower utilization trends and subsiding COVID-linked headwinds. Our estimate for the insurance benefit ratio is pegged at 85.7%, indicating an improvement from the year-ago level of 86.9%.

Other Stocks That Warrant a Look

Here are some other companies from the broader medical space that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

Bio-Rad Laboratories, Inc. BIO has an Earnings ESP of +0.16% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Bio-Rad’s earnings per share for the to-be-reported quarter is pegged at $3.24, which has been unchanged over the past week. BIO beat earnings estimates thrice in the past four quarters and missed once, the average surprise being 27.5%.

AstraZeneca PLC AZN has an Earnings ESP of +1.36% and a Zacks Rank #3.

The Zacks Consensus Estimate for AstraZeneca’s bottom line for the to-be-reported quarter is pegged at 86 cents per share, which witnessed two upward estimate revisions in the past month against none in the opposite direction. AZN beat earnings estimates in all the past four quarters, the average surprise being 7.8%.

Amgen Inc. AMGN has an Earnings ESP of +1.82% and is a Zacks #3 Ranked player.

The Zacks Consensus Estimate for Amgen’s bottom line for the to-be-reported quarter is pegged at $3.84 per share, while the consensus mark for revenues is pegged at $6.2 billion. AMGN beat earnings estimates in all the past four quarters, the average being 3.4%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AstraZeneca PLC (AZN) : Free Stock Analysis Report

Amgen Inc. (AMGN) : Free Stock Analysis Report

Humana Inc. (HUM) : Free Stock Analysis Report

Bio-Rad Laboratories, Inc. (BIO) : Free Stock Analysis Report

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