UPDATE 4-Humana sees improved 2012, plans $500 mln acquisition

Mon Nov 5, 2012 1:21pm EST

* Plans to buy Metropolitan Health Networks

* Bruce Broussard to become CEO on Jan. 1

* 2012 outlook above expectations

By Caroline Humer

Nov 5 (Reuters) - U.S. health insurer Humana Inc said on Monday it expects 2012 to be better than it expected because it had costs under control. It also announced plans for a $500 million healthcare acquisition, the latest move in its expansion of its government insurance business.

Humana beat profit expectations even as its earnings fell. Its profits largely recovered from last quarter when a surge in membership created a surprise increase in payments for claims and its earnings fell short.

Its outlook for 2013 of profits of $7.60 to $7.80 per share was a bit below expectations of $7.87 per share, according to Thomson Reuters I/B/E/S.

The company's shares were slightly lower in early afternoon trading and are down 25 percent from their 52-week high in January.

The profit outlook dampened shares, Matthew Coffina, an analyst at Morningstar Research said, as did a conference call with management in which analysts and investors voiced concerns about the company's acquisitions plans.

Humana said on Monday it would buy Metropolitan Health Networks, a Florida-based healthcare organization that coordinates medical care for Medicare and Medicaid members. This is the largest of three healthcare investments it announced.

"I'd say the Street is perhaps concerned to a certain extent about these acquisitions and whether they are a good use of capital," Coffina said.

Humana, whose business focuses on Medicare healthcare for older people and Medicaid care for the poor, is positioning itself to benefit as government healthcare reform rolls into place.

Humana President Bruce Broussard said during the conference call that the acquisition was part of its strategy to grow its network of doctor groups.

Under the Patient Protection and Affordable Care Act, more than 30 million people are expected to join the ranks of the insured over the next decade, including in government healthcare programs for the elderly and poor. It is unclear how U.S. presidential elections on Nov. 6 will affect that law or the reform.

Humana said that the acquisitions would add to earnings in 2013 but did not say by how much.

Humana said it would pay $11.25 per share for Metropolitan Health Networks. That is about a 4 percent premium compared with Friday's close of $10.85 per share. Barclays and Morgan Joseph TriArtisan advised Metropolitan Health Networks and Bank of America advised Humana on the deal.

It also said it is buying a minority stake in MCCI Holdings, a privately held medical services organization in Florida, for an undisclosed amount.

In addition, Humana purchased Certify Data Systems, a technology company focusing on the electronic exchange of health records that serves hospital, physician and laboratory customers. The price was not disclosed.

Humana also said on Monday that Broussard would take over as CEO from Michael McCallister on Jan. 1. The move had been planned but the timing was not known. McCallister remains non-executive chairman.

QUARTERLY PROFITS

Humana said third-quarter net income was $426 million, or $2.62 per share, down from $445 million, or $2.67 per share a year ago. Revenue rose to $9.65 billion from $9.30 billion.

Wall Street had forecast third-quarter earnings of $2.05 per share, according to Thomson Reuters I/B/E/S.

Humana's message on costs being under control seemed to be in line with other insurers who have already reported third-quarter earnings, including UnitedHealth Group, Aetna and Cigna.

With the economic downturn, the use of elective surgery and other procedures and doctor visits have fallen, lowering the number of medical claims filed and therefore costs to insurers. Most insurers expect these costs to rise, but are not sure when.

Humana's Medicare Advantage program had 1,911,800 members at the end of September, up 298,400 from a year earlier.

Humana also said prescription drug plan results and favorable medical claim reserves had helped earnings during the third quarter and were also behind a decision to raise its 2012 outlook, which it had cut in July. The new outlook is still below the numbers it had foreseen prior to that cut.

The company said it now expects 2012 earnings of $7.25 to $7.35 per share and revenue of $39.0 billion to $39.5 billion in 2012, and revenue of $40.8 billion to $41.3 billion in 2013.

For 2012, Wall Street was expecting earnings of $7.14 per share, according to Thomson Reuters I/B/E/S.

Humana shares were trading at $74.99 in early afternoon on the New York Stock Exchange, down 22 cents or 0.3 percent from Friday's closing.

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