Humana Earnings Hit by High Drug Costs; Guidance Won’t Cheer Investors Either

The company said that the drop in EPS was due primarily to investments in health care exchanges and state-based contracts, as well as higher specialty prescription drug costs associated with a new treatment for hepatitis C. The higher costs were partially offset by membership growth, improved utilization from increased membership in clinical programs and a lower diluted share count.

Humana tightened its full-year estimated adjusted EPS from a prior range of $7.25 to $7.75 to a new range of $7.40 to $7.60. The consensus estimate calls for full-year EPS of $7.75. Adjusted EPS excludes approximately $0.15 in charges expected in the fourth quarter that are related to the early retirement of debt.

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For the 2015 fiscal year, Humana is projecting EPS in the range of $8.50 to $9.00, compared with an analysts’ consensus estimate of $8.83.

In its detailed report on third-quarter results, Humana tightened its forecast for full-year 2014 revenues from a prior range of $47 billion to $49 billion to a new range of $48 billion to $49 billion. The consensus estimate calls for a total of $48.64 billion. For 2015, Humana forecast revenue at $53.5 billion to $54.5 billion, compared with a consensus estimate of $53.66 billion.

Humana’s CEO said:

As we look to 2015, we anticipate an increasingly meaningful enterprise-wide benefit of higher membership. We expect the strong value proposition we provide our members, such as high Star quality ratings, relatively flat premiums and benefits and stable provider networks, will position us well for further membership growth and increasing return on capital.

The company expects total Medicare Advantage enrollment at the end of 2014 in the range of 2.443 million to 2.453 million, which is up by 375,000 to 385,000 year-over-year. Medicare stand-alone enrollment is expected to rise by 650,000 to 700,000 to a total of 3.83 to 3.88 million. Benefit payout ratios are expected at 83.5% to 84.5% for 2014 and 2015.

Humana’s shares closed at $139.875 on Thursday, in a 52-week range of $91.00 to $140.65, and the high was set on Thursday. Shares were inactive in Friday’s premarket. Thomson Reuters had a consensus analyst price target of around $139.00 before the report.

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