Humana Reports Q4 Loss and Revises 2025 EPS Target Amidst Medicare Advantage Cost Challenges

Humana, a leading healthcare company, reported its earnings for the fourth quarter of 2023 and the full year of 2023. The company faced challenges in the fourth quarter due to higher-than-expected inpatient utilization and increased non-inpatient trends, resulting in a loss per share of $4.42 on a GAAP basis and an adjusted loss per share of $0.11.

The company's revenue for the fourth quarter was $26.46 billion, which exceeded analysts' estimates of $25.41 billion. The insurance revenue accounted for $25.57 billion of the total revenue. Humana's consolidated benefit ratio was 90.7%, slightly higher than the estimated 89.6%, indicating increased medical costs for the company. The operating cost ratio was 14.6%, higher than the estimated 13.1%.

Looking at the full year of 2023, Humana reported earnings per share (EPS) of $20.00 on a GAAP basis and $26.09 on an adjusted basis. The company's EPS for the full year exceeded expectations and showcased its ability to navigate the challenging healthcare landscape.

Despite its strong performance in 2023, Humana provided guidance for the fiscal year 2024 that fell below analysts' estimates. The company expects EPS of approximately $16.00 on an adjusted basis, significantly lower than the consensus estimate of $29.18. This forecast considers the higher Medicare Advantage medical costs experienced in the fourth quarter of 2023, which Humana assumes will persist throughout 2024.

Humana also affirmed its projections for individual Medicare Advantage annual membership growth in 2024, anticipating an increase of approximately 100,000 members or 1.8 percent. However, the company stated that it may prioritize margin recovery over membership growth in the near term.  

The management of Humana announced that it no longer believes its previously communicated adjusted EPS target of $37 for 2025 is achievable. Instead, the company aims to deliver $6 to $10 of adjusted EPS growth in 2025 through pricing actions in its Medicare Advantage business, earnings growth in other lines of business, and ongoing productivity and trend mitigation initiatives.

Despite the challenges faced by the company and the need for an industry response, Humana expressed confidence in its strong core fundamentals and growth outlook for Medicare Advantage and value-based care. The company believes that its focused approach on Medicare Advantage and expanding CenterWell capabilities will enable it to compete effectively and deliver long-term value for shareholders.

Following the earnings report, Humana's stock experienced a significant decline, with shares falling by 14% in premarket trading. Investors may need to closely monitor the managed care sector, including stocks such as CI, CNC, UNH, and ELV, to assess any potential impact on Humana's performance.

In conclusion, Humana faced challenges in the fourth quarter of 2023, resulting in a loss per share on a GAAP basis. However, the company's revenue exceeded expectations, and its earnings for the full year of 2023 surpassed estimates. Despite providing a lower-than-expected guidance for 2024, Humana remains confident in its long-term growth prospects, particularly in Medicare Advantage and value-based care. Investors will closely watch the company's implementation of pricing actions and productivity initiatives to drive EPS growth in 2025.

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