Humana - $HUM - Earnings Analysis: Medicare Advantage and state-based contracts membership growth.

Business Model

Humana generates revenue primarily through premiums from its insurance products, including Medicare Advantage, state-based contracts, and specialty benefits. It also earns revenue from services within its CenterWell segment, encompassing pharmacy, primary care, and home solutions.

Revenue Sources

• Premiums from Individual Medicare Advantage, Group Medicare Advantage, Medicare stand-alone PDP, State-based contracts, Commercial fully-insured, Specialty benefits, and Medicare Supplement.
• Services revenue from Home solutions, Primary care, Pharmacy solutions, Military services, and Commercial ASO.
• Investment income.

Income Statement Analysis

• Total revenues increased by 10.4% in 4Q24 compared to 4Q23, driven by higher Medicare premiums and membership growth in Medicare Advantage and state-based contracts.
• Benefits expense increased by 11.4% in 4Q24 compared to 4Q23, reflecting elevated medical cost trends and lower favorable prior period medical claims reserve development.
• The company experienced a Loss from operations of $543 million in 4Q24 compared to a loss of $348 million in 4Q23.

Balance Sheet Analysis

• Total assets decreased slightly, while total liabilities also decreased. Total equity increased slightly year over year.

Cash Flow Analysis

• Operating cash flows decreased year-over-year, primarily reflecting lower earnings, partially offset by the favorable impact of working capital items.

Capital Allocation

Humana will remain prudent in their near-term capital deployment approach as they fully assess their Stars mitigation plans and until they have better visibility into the final 2026 MA funding environment and MA pricing strategy. As a result, the current 2025 outlook does not contemplate share repurchase activity. Dividend is intended to remain flat year over year on a per share basis throughout 2025.

Management Commentary

Achieved 2024 Adjusted EPS of $16.21, in line with our guidance, and reaffirmed 2025 outlook of ‘at least in line with 2024 results.

Solid finish to 2024, reporting 4Q Adjusted net loss per share of $2.16, in line with expectations and inclusive of incremental investments in Stars.

Committed to achieving individual MA pretax margin of ‘at least 3%’ over time.

Anticipate full year Individual MA membership losses of approximately 550,000, inclusive of impact of exiting certain unprofitable plans and counties

Acknowledge risk in achieving ‘at least 3%’ by 2027 driven by uncertainty in pace of Stars recovery

Overall Sentiment: Cautiously optimistic, focusing on long-term value creation and disciplined execution of strategic priorities despite near-term headwinds.

Recommendation

Rating: Hold

Reason for Rating: Given mixed results of solid earnings and concerns of loss of member.

Disclaimer: This analysis is based on company filings and public information. It is for informational purposes only and not financial advice. Past performance does not guarantee future results.

Generated on: 2/12/2025, 12:32:22 AM