Humana Inc., the second-biggest provider of U.S.-funded health coverage, gained the most in two months after beating analysts' estimates for revenue and saying higher drug-plan prices will help it meet its profit forecast, Bloomberg reported.
Revenue climbed 18 percent in the fourth quarter from a year earlier to $7.49 billion because of higher enrollment in medical plans, the Louisville, Kentucky-based company said today in a statement. Humana jumped as much as 9.5 percent in New York Stock Exchange composite trading and is one of the top 10 gainers in the Standard & Poor's 500 Index.
Humana said it expects to earn $5.90 to $6.10 a share this year, helped by a 64 percent increase in average premiums for its biggest U.S. Medicare-backed drug plans for the elderly. In 2008, drug plans derailed Humana's profit goals because a larger number of sicker people joined the plans and generated higher-than- anticipated claims. The company raised premiums, a move that Humana says may drive away 1.2 million expensive customers.
"They're better off being very careful in their pricing, even if it means giving up some enrollment," said Ana Gupte, an analyst with Sanford C. Bernstein & Co. in New York, in a telephone interview today. Medicare drug plans have "fairly tight margins."
The company's higher drug-plan rates forced it to withdraw from serving many low-income customers, a move that will improve profit this year, said Chief Executive Officer Michael McCallister in a teleconference today with analysts.
Humana jumped $3.40, or 9 percent, to $41.33 at 1:20 p.m., and earlier touched $41.55, for the biggest intraday gain since Nov. 24. The shares sank 54 percent in the 12 months before today.
At year-end, Humana covered 3.1 million customers in Medicare drug plans. Membership will plunge to fewer than 2 million in 2009, according to the statement.
The drug plans and lower investment proceeds dragged net income down 28 percent in the fourth quarter, to $174.1 million, or $1.03 a share. Earnings missed by 3 cents a share the average estimate of analysts surveyed by Bloomberg. Earnings for the year were $3.83 a share.
The company reported a 23 percent decline in investment income for the fourth quarter to $66.2 million and said it took a charge of $10 million, or 4 cents a share, for impaired investments in the quarter.
The insurer is second to UnitedHealth Group Inc., the largest U.S. health insurer, in Medicare-subsidized plans for the elderly.