Humana raises 2019 profit forecast as Medicare Advantage unit flourishes

Humana reported third-quarter profit above Wall Street estimates and raised its full-year earnings forecast on Wednesday, fueled by growth in its main business of selling government-backed Medicare Advantage health insurance plans.

Shares of the company rose about 3.1% to $304 in premarket trading.

The company said, this year it expects to add more than half a million people to its individual Medicare Advantage health plans – privately managed federal healthcare covers for Americans older than 65 or with disabilities.

Medicare Advantage plans account for about one-third of Medicare beneficiaries across the country.

Sales from the company’s retail unit, which includes Medicare Advantage plans, rose 16.7% to $14.09 billion in the third quarter, as it added more members and charged higher premiums. The unit contributed nearly 87% to Humana’s quarterly revenue.

Chief Financial Officer Brian Kane said the company’s performance so far this year has set it up for “a solid 2020 from both a Medicare Advantage membership and earnings per share growth perspective.”

Humana raised its full-year adjusted earnings per share forecast to $17.75, ahead of the average analyst estimate of $17.64 and its prior forecast of $17.60.

The “impressive” results and rapid earnings growth should ease concerns around the return of the industry-wide fee next year, said Oppenheimer analyst Michael Wiederhorn.

The company had previously warned that it would not meet its earnings growth target for 2020 due to the return of the fee that was put in place to help fund the implementation of former President Barack Obama’s Affordable Care Act, but was suspended for 2017 and 2019.

Humana’s consolidated benefits expense ratio, the percentage of premiums spent on claims, worsened to 85% in the quarter ended Sept. 30, from 82% last year. Analysts had expected 84.77%. A lower ratio is better for health insurers.

Net income rose to $689 million, or $5.14 per share from $644 million, or $4.65 per share, a year earlier.

Excluding items, the company earned $5.03 per share, beating estimates of $4.58 per share, according to IBES data from Refinitiv.

Total revenue rose 14.3% to $16.24 billion, above estimates of $16.15 billion.

Read the complete earnings release here.