NEW YORK (Reuters) - Health insurer Humana Inc (HUM.N) said on Monday fourth-quarter profit soared 57 percent, beating Wall Street’s expectations, on strength in its Medicare plans for older Americans and a lower tax rate.
A key profitability ratio also came in better than some analysts expected, in contrast to earlier reports this quarter from the two largest U.S. health insurers, UnitedHealth Group Inc (UNH.N) and WellPoint Inc WLP.N.
Net income at Humana rose to $243.2 million, or $1.43 per share, from $155 million, or 92 cents per share, a year earlier.
Analysts on average had expected $1.32 per share, according to Reuters Estimates.
Revenue at the Louisville, Kentucky-based company, one of the largest U.S. providers of Medicare plans, increased 12 percent to $6.34 billion.
“While a lower tax rate drove most of the (fourth-quarter) upside, the results appear overall high quality,” Goldman Sachs analyst Matthew Borsch wrote in a research note.
Humana shares rose 16 cents to $82 in pre-market trade. They have risen 48 percent since the start of 2007, outpacing a 5 percent rise for the S&P Managed Healthcare index .GSPHMO, which includes the six largest U.S. health insurers.
Humana has capitalized on a major expansion of Medicare, the U.S. government health insurance program for older Americans and the disabled. For full-year 2007, net income rose 71 percent to $833.7 million.
Enrollment in Humana’s full-service Medicare Advantage plans increased 14 percent from a year earlier to 1.14 million and was up slightly from the third quarter.
Its Medicare Advantage plans had 1.24 million members enrolled in January. It expects to add 200,000 to 250,000 Medicare Advantage members for 2008.
Membership in the company’s Medicare plans offering only prescription drug benefits, which take in far less revenue than Medicare Advantage plans, fell 2.7 percent to 3.44 million from a year earlier.
Humana’s benefits ratio — a key profitability gauge measuring the percentage of premiums spent on medical benefits — improved to 80.3 percent from 83.2 percent.
Wachovia analyst Matt Perry, who had expected a ratio of 81.9 percent, called Humana’s results a nice contrast to lackluster reports from WellPoint and UnitedHealth.
Membership in Humana’s commercial health plans for employers rose 5 percent to 3.45 million from a year earlier.
Sales, general and administrative expenses consumed a higher portion of revenue — 16 percent against 14.7 percent a year earlier — mainly because of higher costs to market its Medicare plans.
“These are the type of results — better-than-expected underwriting results offset by higher sales and marketing spending — that investors typically reward,” Perry said in a research note.
Humana’s income tax rate for the quarter was 32.2 percent, lower than the 36.5 percent for the first nine months. The lower rate reflected a revised estimate of the company’s state tax rate, and the favorable resolution of an Internal Revenue Service audit item, Humana said.
The company raised its 2008 earnings forecast to a range of $5.35 per share to $5.55 per share, reflecting a lower-than-expected tax rate. It had forecast $5.30 to $5.50 in October. Analysts expect $5.47.
Reporting by Lewis Krauskopf; Editing by Mark Porter/Lisa Von Ahn