February 5, 2020 / 4:07 PM / 19 days ago

Humana profit beats Street view on Medicare strength, provides upbeat 2020 forecast

(Reuters) - Humana Inc (HUM.N) on Wednesday reported a higher-than-expected quarterly profit on the strength of its business that sells government-backed Medicare plans, and the U.S. health insurer forecast 2020 revenue ahead of Wall Street estimates.

Humana shares were up more than 5% at $361.48 after earlier climbing as much as 7.3% to $367.9.

The company has been reaping benefits from the government’s focus on Medicare Advantage plans over traditional Medicare fee-for-service plans, as people aging into the program choose the managed care plan that caps out-of-pocket spending.

Humana said it expects 270,000 to 330,000 more members to sign up this year for its individual Medicare Advantage plans for those aged 65 and over, representing a 7.5% to 9.2% growth over 2019.

For the quarter, earnings from Medicare and Medicaid plans, along with the company’s healthcare services business were better than expected and the forecast should be well received by investors, Stephens analyst Scott Fidel said.

The company forecast 2020 adjusted earnings of $18.25 to $18.75 per share, a range with a midpoint below analysts’ expectations of $18.63 per share, according to Refinitiv IBES data. But a forecast for revenue of between $73.9 billion and $74.5 billion, exceeds expectations of $72.01 billion.

The stock jump was further buoyed by positive sector sentiment following the long-delayed results from the chaotic Iowa Democratic Party caucuses, which had one of the more moderate candidates in the lead. Shares of rival health insurers UnitedHealth Group Inc (UNH.N) and Anthem Inc (ANTM.N) were also up about 5% on Wednesday.

The run up to the 2020 U.S. presidential election has caused market volatility, with insurers facing fears that a Democrat in the White House would mean sweeping industry changes, such as the Medicare-for-all plan favored by Senator Bernie Sanders that aims to eliminate private health insurance.

Evercore ISI analyst Michael Newshel said health insurer stocks rose after the mixed results from Iowa on the perception that the chances a Medicare-for-all candidate would be elected had decreased.

Net income for the quarter rose to $512 million, or $3.84 per share, from $355 million, or $2.58 per share, a year earlier.

However, its consolidated benefit ratio, the percentage of premiums collected versus spending on claims, worsened to 86.6% from 83.4% last year, missing the consensus estimate of 85.68%.

Excluding items, the company earned $2.28 per share, beating the average analysts’ estimate by 8 cents.

Total revenue rose 15.01% to $16.30 billion, above estimates of $16.19 billion.

Reporting by Manojna Maddipatla and Tamara Mathias in Bengaluru, Caroline Humer in New York; Editing by Arun Koyyur and Bill Berkrot

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