Insider Purchases & Buybacks: HUM

As I noted in a profile of Cypress Semi (CY - commentary - Cramer's Take) last week, share buybacks might appear very investor friendly, as it signals bullishness in the company's outlook vis-à-vis its stock price.

However, it is important to check out the company's fundamentals and industry-operating environment before putting your money behind it.

Humana (HUM - commentary - Cramer's Take) recently announced a share buyback of up to $150 million. (On Stockpickr, you can see the rest of the recent insider trades and buybacks).

Judging by recent operating results, management's bullishness appears to be justified. Humana's fourth-quarter 2007 profits jumped 57% to $243 million, boosted by a one-time gains and a lower tax rate. EPS came in at $1.43, $0.11 ahead of the Wall Street forecasts. Also, the Louisville, KY-based health insurer's profit growth was far more impressive than peers Wellpoint (WLP - commentary - Cramer's Take) and UnitedHealth (UNH - commentary - Cramer's Take), which boosted year-over-year EPS 7% and 3%, respectively.

On the heels of strong results, Humana raised its earnings guidance for 2008 to between $5.35 and $5.55, leading the consensus forecast to rise $0.07 to $5.50. Humana earned $4.91 a share in 2007.

While Medicare Advantage (MA) membership rose by 14%, the quarterly benefits ratio (benefit expenses as a percent of premium revenue) came down by 290 basis points to 80.3%. Humana ended the fourth quarter with 1.14 million patients enrolled in its MA plans. That metric rose to 1.24 million at the end of January, and Humana aims to add between 200,000 and 250,000 additional members in 2008.

Of course, recent cuts in funding for government-sponsored programs like Medicare and Medicaid could pressure Humana's top and bottom lines.

To offset potential regulatory limits in the government-sponsored programs, Humana is using its considerable financial strength to augment the core business through acquisitions. Humana bought KMG America and CompBenefits in 2007.

KMG America's voluntary products complement Humana's offerings, while CompBenefits offers a full-service vision product and has more than 25 years of experience in dental plans.

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At the time of publication, Raznick had no positions in the stocks mentioned, although positions may change at any time.

Jason Raznick is president of Easy Stock Alerts and has been involved with the capital markets for several years. He has worked for Merrill Lynch, Dynamis and Tricap Holdings, a joint venture with Fortress Investment Group. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Raznick appreciates your feedback; click here to send him an email.