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Humana Is Healthy For The Quarter
Despite the market's continued uncertainty over health insurance stocks as a result of healthcare reform, Humana's (NYSE:HUM) third quarter results don't seem to show any pain, at least for this quarter anyway. As one of the nation's largest recipients of Medicare payments, Humana shares were always discounted to the overall industry as a result of the exposure. So far, that exposure seems to be benefiting, not hurting the company.
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Bouncing Back
For the third quarter of 2010, Humana earned $393 million or $2.32 a share, smashing the most optimistic of estimates. Analysts were expected EPS of $1.67. Even after adjusting for a positive 31 cent benefit due to medical claims, Humana's earnings results were still widely ahead of estimates. Revenues, however, were a different story. Analysts were expecting $8.43 billion in sales while the actual figure was $8.42 billion. For the year the company forecast EPS of $6.40 to $6.50.
Shares have been anticipating such results: Humana shares trade at $58 just below the company's 52 week high. Trading for 10 times forward earnings, Humana now trades in line with peers Aetna (NYSE:AET) and UnitedHealth Group (NYSE:UNH) and at a slight premium to WellPoint's (NYSE:WLP) eight times forward earnings, respectively.
Government Graces
As a big provider of Medicare Advantage insurance plans, Humana relies on Uncle Sam for a vast majority of its income. In the past, such a situation may have been a blessing as no customer was better to have than the government. While the government still continues to pay, there's more concern going forward with the state of the economy and the ultimate state of healthcare reform. To be sure, similar concerns were surrounding Humana at the beginning of the year as well, but the company's results have been solid thus far. At the same time, however, shares were trading at a much lower price and valuation as well. With a concentrated government exposure and a valuation that is no longer a wide discount from its peers, 2011 may not be as bountiful as 2010.
Of course, Humana bulls will argue that any healthcare reform will likely increases the number of insureds supported by a government insurance plan. Such plans will likely be picked by players such as Humana and Wellcare (NYSE:WLP). How profitable those policies will be is the big uncertainty.
Time Will Tell
Humana's share price increase in 2010 has all but factored in the solid year the company is on track to have. Going forward, the market is not so sure. (For related reading, take a look at Investing In The Healthcare Sector.)
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IN PICTURES: Baby Buffett Portfolio: His 6 Best Long-Term Picks
Bouncing Back
For the third quarter of 2010, Humana earned $393 million or $2.32 a share, smashing the most optimistic of estimates. Analysts were expected EPS of $1.67. Even after adjusting for a positive 31 cent benefit due to medical claims, Humana's earnings results were still widely ahead of estimates. Revenues, however, were a different story. Analysts were expecting $8.43 billion in sales while the actual figure was $8.42 billion. For the year the company forecast EPS of $6.40 to $6.50.
Shares have been anticipating such results: Humana shares trade at $58 just below the company's 52 week high. Trading for 10 times forward earnings, Humana now trades in line with peers Aetna (NYSE:AET) and UnitedHealth Group (NYSE:UNH) and at a slight premium to WellPoint's (NYSE:WLP) eight times forward earnings, respectively.
As a big provider of Medicare Advantage insurance plans, Humana relies on Uncle Sam for a vast majority of its income. In the past, such a situation may have been a blessing as no customer was better to have than the government. While the government still continues to pay, there's more concern going forward with the state of the economy and the ultimate state of healthcare reform. To be sure, similar concerns were surrounding Humana at the beginning of the year as well, but the company's results have been solid thus far. At the same time, however, shares were trading at a much lower price and valuation as well. With a concentrated government exposure and a valuation that is no longer a wide discount from its peers, 2011 may not be as bountiful as 2010.
Of course, Humana bulls will argue that any healthcare reform will likely increases the number of insureds supported by a government insurance plan. Such plans will likely be picked by players such as Humana and Wellcare (NYSE:WLP). How profitable those policies will be is the big uncertainty.
Time Will Tell
Humana's share price increase in 2010 has all but factored in the solid year the company is on track to have. Going forward, the market is not so sure. (For related reading, take a look at Investing In The Healthcare Sector.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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