Humana to Gain from Share Buyback, Raise Membership Outlook

Shares of Humana Inc. HUM have gained by more than 6% in yesterday’s trading, after the company announced an accelerated share buyback program and revised 2019 Medicare Advantage (MA) membership outlook. The company also reaffirmed its 2018 adjusted earnings per share guidance of $14.40.

Humana plans to repurchase its common stock worth $750 million through an accelerated stock repurchase agreement (the “ASR Agreement”) as part of the $3.0 billion share repurchase program, announced by the company on Dec 14, 2017.

The ASR Agreement is consistent with the company’s previously anticipated capital deployment plans for the remainder of 2018 and 2019. This should aid the bottom line.

The company increased its membership growth outlook for Individual MA in 2019 from 350,000 to 400,000 members. This represents an increase of 100,000 members from its initial estimate, and 11% to 13% increase from the expected year ended Dec 31, 2018 membership level of approximately 3.07 million members.

The upward revision was driven by better than expected retention of existing members during the Annual Enrollment Period (AEP) and higher-than-expected sales.

For Group MA, net membership gains for 2019 are expected to increase approximately 30,000 members year over year.

However, for Prescription Part D (PDP), the company now estimates a net membership decline of 750,000 to 800,000 members for the year ended Dec 31, 2019, compared to its initial estimate of a decline of approximately 500,000 members. The net decline is primarily attributable to the competitive nature of the industry and the erosion of the pricing discipline enjoyed by the company so far.

Humana generates more than 50% of its premiums from MA and an increase in membership in these lines of business definitely bodes well for the company. Moreover, a favorable MA reimbursement is another tailwind.

Year to date, stock of the company has gained 33% compared with the industry’s growth of 26%.

 

Earlier during the week, UnitedHealth Group Inc. UNH also provided strong guidance for 2019. The health insurance industry has performed very well this year and is slated for further growth from expected Medicaid expansion, increase in Medicare Advantage and overall improvement of regulatory climate.

Zacks Rank & Other Stocks to Consider

Humana carries a Zacks Rank #2 (Buy). Other stocks worth considering are Molina Healthcare Inc. MOH and Anthem, Inc. ANTM. Both the companies carry a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Both Molina Healthcare and Anthem have surpassed their respective estimates in each of the trailing four quarters with average positive surprises of 82.6% and 5.11%, respectively.

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