Bloomberg News

Humana Shares Gain After Insurer Increases Profit Forecast

November 01, 2011

(Updates with closing share price in the second paragraph.)

Oct. 31 (Bloomberg) -- Humana Inc., the second-largest U.S. Medicare managed-care provider, reached its highest price in almost four years after the company raised its full-year profit forecast and issued a 2012 outlook that was higher than analysts expected.

Humana climbed 5.7 percent to $84.89 at the close in New York, the highest share price since Jan. 16, 2008. Full-year earnings may increase to $8.35 to $8.40 a share, the Louisville, Kentucky-based company said today in a statement. Humana said 2012 profit may be $7.40 to $7.60 a share.

Next year’s outlook doesn’t include two takeovers that are expected to be completed by the end of the year, said Chris Rigg, an analyst at Susquehanna Financial Group in New York. The addition of Arcadian Management Group in Oakland, California, and MD Care Inc. in Signal Hill, California, may add 79,000 members based on current enrollments.

“They’re coming out with robust growth next year even before counting these acquisitions,” Rigg said in a telephone interview. “These will definitely be additive to earnings even if they don’t close for another three or four months.”

David Windley, an analyst at Jefferies & Co. In Nashville, Tennessee, estimates the two deals may add as much as 15 cents a share to the insurer’s earnings.

Humana also forecast its retail Medicare Advantage enrollment growing by 145,000 to 155,000 members in 2012 and its Medicare Part D drug plans by 500,000 to 600,000 people. Advantage plans are sold by insurers and provide different coverage options than Medicare, the U.S. health program for the elderly and disabled. Part D plans cover prescription drugs.

Beat Expectations

“This is very strong growth,” Rigg said. Last year, they exceeded their expectations here, too.’’

Humana is anticipating an increase in demand for medical services in 2012 after consumers held off spending this year amid 9 percent unemployment. UnitedHealth Group Inc., the largest U.S. health insurer by sales, on Oct. 18 also predicted an increase in medical costs.

“We’re being conservative,” with the 2012 outlook, Chief Executive Officer Michael McCallister said in a conference call today.

Humana said less-than-expected spending this year will add 57 cents a share to 2011 earnings that had been set aside for anticipated medical claims.

Third-quarter net income rose 13 percent to $444.8 million, or $2.67 a share, from $393.2 million, or $2.32, a year earlier, Humana said. Earnings before one-time items of $2.54 a share beat the $2.03 consensus forecast of 17 analysts polled by Bloomberg.

Humana announced it agreed to buy Arcadian Management in August without disclosing financial terms. Humana agreed to purchase MD Care in September and no financial details were released.

--Editors: Bruce Rule, Andrew Pollack

To contact the reporter on this story: Pat Wechsler in New York at pwechsler@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.


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