Humana Profit Soars - TheStreet

Humana Profit Soars

The stock holds its ground as marketwide jitters continue.
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No wonder


(HUM) - Get Report

jumped the gun.

Humana told investors back in mid-July, a day before


(UNH) - Get Report

was set to kick off the managed care earnings season, that it had enjoyed a spectacular second quarter. In contrast to UnitedHealth -- which has been hurt by weak enrollment and rising medical costs -- Humana reported positive trends across its own business lines. Rocketing premiums for the company's Medicare Part D prescription drug coverage added a hefty boost.

All told, Humana's second-quarter revenue jumped 19% to $6.43 billion -- topping the $6.28 billion consensus estimate -- as the company's booming Medicare business continued to flourish. Net income soared 142% to $217 million, with earnings per share of $1.28 matching the forecast offered in the company's bullish preannouncement.

Meanwhile, Humana's full-year earnings guidance -- raised this month to $4.40 to $4.50 a share -- remains ahead of Wall Street's current $4.34 projection.

"An across-the-board focus on operational excellence led to an extremely strong second quarter," Humana CEO Michael McCallister stated on Monday. "These same dynamics are expected to fuel Humana's performance for the remainder of the year and position us well for growth into the future."

Humana shares slipped 6 cents to $64.75.

Bear Stearns analyst John Rex offered clear-cut reasons for that rise.


earnings upside was mostly about the government segment, with much higher Part D revenues and a somewhat lower medical cost ratio being key," Rex noted on Monday. But "all-in view shows both government and commercial

results higher" than expectations.

Rex highlighted Humana's "significantly higher Part D premium revenue" in particular. Based on Humana's second-quarter report, Rex estimated, Humana customers are now paying $101.40 a month -- some 18% more than a year ago -- for their Medicare Part D policies.

At the same time, Humana is spending a smaller percentage of its revenue on medical costs. Specifically, Humana saw its Medicare MCR fall from 86% a year ago to 84.3% in the latest quarter. The company reported year-over-year improvement in its commercial MCR as well.

As a result, Humana's overall MCR dropped to 83.4% in the latest period. Looking ahead, the company expects its medical costs to remain stable -- with possible improvement in some commercial accounts -- as the year wears on.

To be fair, Humana's bullish update did feature a few week spots. For starters, Rex pointed out, Humana lowered enrollment targets for both its Medicare Advantage and its Medicare Part D businesses. In addition, he noted, the company's commercial MCR -- while clearly lower than a year ago -- weathered a sequential rise. Finally, he added, administrative spending came in a bit higher than expected.

Rex remains on the sidelines with a peer-perform rating on Humana's stock for now. His firm has noninvestment banking ties to the company.