Humana profit meets Street view; shares off

NEW YORK (Reuters) - Humana Inc (HUM.N) reported a quarterly profit in line with Wall Street estimates as improved performance of its Medicare plans for the elderly offset weakness in its plans serving employers.

Shares in the insurer fell more than 3 percent in volatile trading on Monday. Investors may have been hoping for more after UnitedHealth Group Inc (UNH.N) and WellPoint Inc (WLP.N) reported better-than-expected quarterly results including strong Medicare performance, analysts said.

Humana, one of the largest Medicare providers, boosted its forecast for membership in its full-service Medicare plans but projected worse trends for its commercial plans serving employers.

Wall Street also may be turning its focus to a government announcement later this month regarding Medicare reimbursement rates, which last year sent health insurer shares down sharply, said Collins Stewart analyst Brian Wright.

"The concern is what's the event headline risk...The market is saying the good news has happened, what's next," Wright said.

While falling as much as 5 percent initially, shares pared losses -- even moving into positive territory at one point -- after the release of details in President Barack Obama's U.S. budget.

The budget targets only small efforts to improve the nation's healthcare system, as bills proposing sweeping healthcare reform have stalled in Congress.

Shares of UnitedHealth, Aetna Inc (AET.N) and Cigna Corp (CI.N) were all each down more than 1 percent.

Humana's fourth-quarter net income rose to $250.7 million, or $1.48 per share, matching the average estimate of analysts, according to Thomson Reuters I/B/E/S. The results compared with $174.1 million, or $1.03 per share, a year earlier.

Revenue rose 2 percent to $7.63 billion. Analysts looked for $7.78 billion.

"Relative to some of the other companies that reported, Humana's results were a little bit more in line with expectations," Leerink Swann analyst Jason Gurda said, in explaining the share price weakness on Monday.

FORECAST RAISED SLIGHTLY

Humana slightly raised its full-year profit forecast, a move some analysts had expected after the company won an extension of a military health contract. It was not immediately clear how the new forecast compared with analysts' estimates, analysts said.

Humana, whose business is highly leveraged to Medicare, trades at among the lowest valuations for health insurers amid fears that the government will pressure reimbursement rates for the program.

Enrollment in its full-service Medicare Advantage plans rose 5 percent from a year earlier to nearly 1.51 million at the end of the year, but was down slightly from the end of September.

The company expects to add 240,000 to 260,000 Medicare Advantage members by year-end, compared with previous expectations of 180,000 to 240,000.

Profit in its government segment that includes Medicare soared 69 percent to $452.3 million in the fourth quarter. The company faced lower prescription drug claim costs than a year earlier, when the design of one of its prescription drug plans led to steep costs.

Its commercial segment that includes plans serving employers reported a loss of $53.6 million against a loss of $6.3 million a year ago. The company cited higher medical and administrative costs.

Humana backed its forecast for 2010 earnings in its commercial segment, but projected a deeper decline in commercial membership for the year.

Louisville, Kentucky-based Humana raised its full-year earnings forecast to $5.15 to $5.35 per share, compared with a range of $5.05 to $5.25 previously, as the company won an extension of the Tricare military contract through the first quarter of 2011. Analysts' average forecast was $5.41.

Humana's forecast includes asset writedowns and charges tied to the exit of the Tricare contract. Some analysts excluded those charges from their projections, making it unclear if the consensus estimate was comparable to Humana's forecast.

Humana's new forecast equates to $5.58 to $5.78 per share excluding the Tricare charges, said Collins Stewart's Wright. Wells Fargo analyst Matt Perry characterized the outlook as "in line."

Humana shares were down 84 cents at $47.78 on the New York Stock Exchange, after falling as low as $46.19 and rising as high as $50.34.

(Reporting by Lewis Krauskopf; Editing by Derek Caney and John Wallace)