Humana Leaps a Staggering 86%

Health insurer Humana

saw its fourth quarter earnings rise 86 percent thanks to membership growth and light use of health benefits. Perhaps the most staggering thing to come out of that is the fact that, despite an 86 percent rise, the results missed expectations. According to the

, HUM forecast current-quarter earnings of $1.35 to $1.45 a share, while analysts surveyed by Reuters expected $1.81. HUM raised its full-year earnings estimate by 10 cents to $7.50 to $7.70 a share and lifted its revenue guidance by $500 million to a range of $38.75 billion to $39.25 billion. Any celebration should be muted though. HUM's profit has jumped of late partly because patients made fewer trips to the doctor because of concerns about the economy. That is a sentence that one should never have to write. Humana's profit is reported as $199 million, or $1.20 a share, up from $107 million, or 63 cents, the previous year. Revenue jumped 9.4 percent to $9.06 billion. Bank of America Merrill Lynch, while maintaining its Buy rating on HUM, said that “HUM raised its 2012 guidance to $7.50-7.70 from $7.40-7.60 (vs. First Call consensus of $7.99). Although the guidance raise was welcome (HUM is the only MCO to raise guidance with Q4 results), HUM does not seem to be completely reflecting the better than expected enrollment reported by CMS in its guidance. Overall, the quarter was solid, and we will look for more color on the call regarding what looks like conservatism in guidance.” Goldman Sachs said that its price target is under review, noting that “As expected, 4Q upside was driven primarily by a continuation of favorable medical cost trends. The consolidated medical cost ratio (

) was 81.8% vs. our 83.6%, partly offset by a consolidated operating cost ratio (

) of 17.7% vs. our 16.2%, which we view favorably as an acceleration of yearend operating spending that should benefit earnings this year.” Citi asked if HUM's earnings will matter one year from now. “The company now anticipates its Medicare membership will grow 13% in 2012 because of a better than anticipated open enrollment season, and the company's 2012 EPS guidance still doesn't include any capital deployment, still assumes a 5.5% Medicare margin (versus 7% in 2011, with every 100 basis point change impacting earnings by $1.10 per share), and has no earnings accretion from the Arcadian acquisition. So there's still a clear pathway to get from Humana's current guidance of $7.50-7.70 per share to earnings of more than $9 this year, in our view.” Morgan Stanley was pessimistic on Monday, saying that “Though HUM met consensus for Q4, the lack of upside will likely prove disappointing. Beyond that, the 2012 outlook raise (by a dime to $7.50-$7.70) this early in the year is consistent with moving toward our/Street forecasts of ~$8.00.”