Health insurance company Humana (NYSE:HUM) plunged in pre-market trading after stating in a company filing that it expected its fourth-quarter results to be adversely impacted by higher medical costs. The company added that the rise in Medicare Advantage medical costs was a result of higher inpatient utilization, specifically for November and December, and an increase in the number of outpatient surgeries and supplemental benefits.
Humana expects the higher medicare advantage costs to drive up its Q4 Adjusted Insurance segment benefit ratio to around 91.4% compared to its prior expectation of 89.5%. For FY23, Humana now anticipates an adjusted Insurance segment benefit ratio of around 88% versus its prior estimates of 87.5%.
For the insurance industry, the adjusted benefit ratio is a ratio of the expenses incurred when underwriting a policy to the revenues it estimates to generate from it.
Due to higher-than-expected medical costs, the company now estimates FY23 adjusted earnings of $26.09 per share compared with its prior expectation of $28.25. This was also lower than analysts’ projections of $28.3 per share.
Humana is expected to report its Q4 earnings on January 25.
The lower-than-expected forecast for EPS and the higher medical costs also dragged down other health insurers in pre-market trading, including UnitedHealth (UNH), CVS Health (CVS), and Elevance (ELV).
Is HUM a Good Stock to Buy?
Analysts remain bullish about HUM stock with a Strong Buy consensus rating based on 13 Buys and three Holds. HUM stock has slid by more than 5% over the past year, and the average HUM price target of $580.25 implies an upside potential of 29.6% at current levels.
