UPDATE: Humana 3Q EPS Up 13% On Light Usage, More Members

Humana Inc.'s (HUM) third-quarter earnings rose 13%, topping expectations, as the managed-care firm's rising Medicare membership fueled stronger revenue and a continued slowdown in patients using health-care services kept a lid on costs.

The Louisville, Ky., company once again boosted its full-year earnings outlook. Humana also set a 2012 per-share earnings target that analysts said was an encouraging starting point, even though it implies a decline from this year and is below analysts' consensus view.

In a replay from last week, when Aetna Inc. (AET) took a similar road with its first 2012 guidance projection, analysts are assuming Humana is setting a low bar with plenty of room for increases. The firm's 2011 guidance projection has risen sharply since it was first issued last November.

"We are very encouraged by this initial view and expect the company to adopt a 'beat-and-raise' posture throughout 2012," Sanford Bernstein analyst Ana Gupte said.

Humana shares rose 1% to $81.16 in premarket trading Monday, and are up about 47% on the year through Friday's close.

The company reported a profit of $444.8 million, or $2.67 a share, up from $393.2 million, or $2.32 a share, a year earlier. Excluding prior-period favorable medical claims developments--which reflects overestimates on money needed for patients' claims--per-share earnings rose to $2.54 from $2.01.

Humana in August expected earnings of $1.95 to $2.05, while analysts surveyed by Thomson Reuters had forecast earnings of $2.02 per share.

Humana's medical cost ratio, the percentage of premium revenue used to pay medical bills, fell to 80.7% from 81.6% a year earlier and 82.2% in the second quarter. Health insurers have benefited as economic turbulence slows traffic in doctors' offices and operating rooms, because it means they have fewer bills to cover.

Meantime, revenue in the recent quarter increased 11% to $9.3 billion. Analysts recently forecast $9.25 billion.

Humana--one of the biggest providers of privately run Medicare Advantage health plans for seniors in the U.S.--has boosted sales through its growing member ranks. The company said membership in its individual Medicare Advantage plans has risen 10% from a year ago to 1.6 million at the end of September, mainly because of a successful enrollment season and Americans reaching Medicare age.

Insurers have been focused on growing their businesses for Medicare-based plans to tap the aging pool of baby boomers, and as high unemployment levels make growing the mature market for employer-based insurance a tougher prospect. Cigna Corp. (CI) last week agreed to buy Medicare insurer HealthSpring Inc. (HS) for $3.8 million to boost its presence in the senior market.

Humana, meantime, has recently announced two deals to buy Medicare Advantage HMOs that, in total, add roughly 80,000 members in the western U.S.

For the current year, Humana raised its per-share earnings forecast to $8.35 to $8.40 from its earlier estimate of $7.50 to $7.60. The guidance has been raised multiple times from a $5.35 to $5.55 target set nearly a year ago.

That track record caused analysts to view the initial 2012 guidance--for $7.40 to $7.60 per share--as a low and easily beatable target, even though analysts have targeted a higher $7.79, on average. Some said Humana could hit $9 a share next year.

Humana's guidance in recent years "has been well below what the company actually reports so we wouldn't read very much into the below consensus guidance range," Leerink Swann analyst Jason Gurda said.

Humana projected revenue for the coming year of $38.25 billion to $38.75 billion, bracketing analyst expectations.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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