Humana Inc.'s third-quarter net income jumped 13 percent after another strong quarter of Medicare Advantage enrollment growth. The health insurer's shares hit a new 52-week high Monday after it also gave a better 2012 forecast than some analysts expected.
The Louisville, Ky., company said it expects 2012 earnings between $7.40 and $7.60 per share, which would lead to a drop from its projection for this year. But Humana typically starts with conservative earnings forecasts.
Many analysts expected an initial forecast from the company of $7 per share or less, Citi analyst Carl McDonald said in a research note. Health insurers have been helped the past several quarters by medical costs that have grown more slowly than expected. If that trend continues, the analyst said Humana earnings could top $9 next year.
Analysts expect, on average that the insurer will actually deliver earnings of $7.79 per share next year, according to FactSet.
The price of Humana shares hit $87.32 Monday, while broader trading indexes fell about 2 percent.
The managed-care sector is heading into 2012 buoyed by optimism. Cigna Corp. and WellPoint Inc. have both said they expect their earnings to grow next year. Aetna Chief Financial Officer Joe Zubretsky has said he's "bullish" on his company's prospects.
Health insurers entered 2011 uncertain about the impact of a new health care overhaul rule governing medical-loss ratios, which essentially measure the percentage of premiums insurers spend on care. The impact of that rule has turned out to be manageable and insurers face no such uncertainties heading into 2012
"Next year is sort of a quieter year in terms of regulatory issues, hopefully," Susquehanna analyst Chris Rigg said.
For the third quarter, Humana earned $444.7 million, or $2.67 per share. That compares with earnings of $393.2 million, or $2.32 per share, in the same quarter last year. Revenue climbed 11 percent to $9.3 billion.
Adjusted income was $2.54 per share, which easily beat Wall Street expectations. Analysts surveyed by FactSet expected, on average, earnings of $2.03 per share on $9.26 billion in revenue.
Humana is the second-largest provider of Medicare Advantage plans, privately run versions of the government's Medicare program. Subsidized by the government, the plans offer basic Medicare coverage topped with extras like vision or dental coverage or premiums lower than standard Medicare rates. Medicare accounts for 64 percent of Humana's revenue.
The company said individual Medicare Advantage membership climbed 10 percent compared with last year's quarter to 1.6 million people, mainly because of a successful enrollment season last fall. The insurer's Medicare prescription drug coverage enrollment also jumped 47 percent to 2.5 million people, helped by a low-cost drug plan it offers with retail giant Wal-Mart Stores Inc.
While Medicare Advantage enrollment grew, the company's commercial membership tumbled 9 percent in the third quarter to about 2.5 million people. Humana attributed that mainly to disciplined pricing, which means the insurer avoided dropping prices too low to boost enrollment.
Humana became the latest in a series of big health insurers to raise 2011 forecasts this month, following UnitedHealth Group Inc., WellPoint Inc., Humana Inc. and Cigna Corp. It now expects 2011 earnings of $8.35 to $8.40 per share. That's up from previous guidance of $7.50 to $7.60 per share. Analysts expect $7.69 per share.
The insurer's third-quarter performance and new 2011 forecast confirm "what was pretty much already known: 2011 has been an extremely strong year," Goldman Sachs analyst Matthew Borsch said in a research note.
Humana shares fell back slightly from their 52-week high and closed at $84.89 Monday. That's up nearly 6 percent, or $4.54, from the previous trading day's close. The shares have climbed more than 55 percent so far this year.
The company's all-time high price at closing was $86.98, set Jan. 14, 2008.
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