(Bloomberg) -- Humana Inc. issued a more optimistic 2024 forecast after third-quarter profit exceeded expectations, breaking with larger peers that have struggled to contain medical costs.
Adjusted earnings of $4.16 a share were well above analysts’ estimates for the quarter, and profit for the year will be at least $16 a share, the Medicare insurer said, up from the previous forecast of approximately $16.
Shares of Humana gained as much as 6%, the biggest intraday gain since June. They had lost 44% this year through Tuesday’s close.
Humana has faced a series of shocks this year, including surprise jumps in expenses and a deterioration in crucial Medicare quality scores that are key to future years’ revenue. Investors have been growing impatient for signs that new Chief Executive Officer Jim Rechtin can turn the business around.
2025 View
Next year’s profit will be at least in line with this year’s, the company said on its website. Because of the downgrade in its quality scores, Humana said, there’s a greater risk it won’t return to its target profit margin in individual Medicare Advantage by 2027.
RBC Capital Markets analyst Ben Hendrix called the early view of 2025 profit “softer than expected” in a research note. The comments suggest Humana’s earnings will be in the range of $16 to $17 a share for the next two years, he wrote, well short of current expectations.
Executives said they want to reassure investors that earnings won’t slide in 2025 even as Humana plans to invest in the business to improve operations over the long term. Setting the floor on earnings doesn’t rule out improvement, Rechtin said.
“We have room” to increase earnings in 2025, he said, but executives “need to see some things unfold” before providing a more detailed outlook.
“We want to be appropriately prudent and make sure that we’re doing the right things to establish targets, hit those targets, build credibility over time,” Rechtin said.
The company plans to issue a 2025 forecast at its next earnings report and host an investor day in May.
Humana’s results dodged some of the pressures that squeezed its larger insurance rivals, with medical costs in the quarter in-line with expectations. The insurer also boosted its expectations for Medicare membership growth in 2024, though it expects to lose members next year.
It’s been a tough period for the insurance industry with large companies such as UnitedHealth Group Inc. and Elevance Health Inc. warning earlier this month that higher costs and stricter federal reimbursement rules are cutting into profits. Smaller players including Molina Healthcare Inc. and Centene Corp. have fared better.
As its shares have fallen, Humana has resumed informal discussions about a combination with Cigna Group after talks fell apart last year, Bloomberg News reported earlier this month.
(Updates with shares CEO comment from third paragraph.)
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