Humana Inc posted a sharply higher quarterly profit on Monday, above Wall Street's target, on continued strength in its Medicare health plans for the elderly and its plans for employers.
Shares of the health insurer jumped nearly 6 percent as it also forecast earnings ahead of Wall Street's expectations for 2008, when it expects to add at least 200,000 members to its full-service Medicare Advantage plans.
Goldman Sachs analyst Matthew Borsch said the 2008 forecast was very strong.
While there could be some skepticism with regard to Humana's large (Medicare Advantage) enrollment projection, he wrote in a research note, we believe most investors will have confidence given Humana's strong track record.
Humana shares have outperformed other large health insurers this year as the company aggressively expands its Medicare business, taking advantage of a larger private-sector role under the U.S. government health program for the elderly.
Third-quarter net income rose to $302.4 million, or $1.78 per share, from $159.2 million, or 95 cents per share, a year earlier.
Excluding special items, earnings of $1.53 per share beat the analysts' average forecast by 5 cents, according to Reuters Estimates.
Humana said improvements in its Medicare prescription-drug plans and commercial plans for employers had helped results beat expectations.
Revenue increased 12 percent to $6.32 billion.
Membership in the company's Medicare Advantage plans grew to 1.14 million at Sept. 30, up by 145,000 from a year earlier.
Humana projected enrolling 200,000 to 250,000 more Medicare Advantage members during 2008.
Membership in Medicare plans offering only prescription-drug benefits totaled 3.46 million at the end of the quarter, down about 60,000 from a year ago, but up 20,000 from the second quarter.
The company's medical expense ratio, a key profitability measure of premium revenue spent on medical costs, improved to 81.3 percent from 84.1 percent a year earlier.
Excluding items, Humana estimated full-year 2007 earnings of $4.50 to $4.55 per share, ahead of the analysts' target of $4.52. It forecast 2008 earnings of $5.30 to $5.50, against Wall Street's expectations of $5.20.
Humana shares rose $4.29, or 5.7 percent, to $79.85 in trading before the market opened.
At Friday's close, the stock had climbed 36 percent this year, outpacing a 11 percent rise for the Morgan Stanley Healthcare Payor index (.HMO: Quote, Profile, Research), a broad gauge of health-insurer stocks.
(Reporting by Lewis Krauskopf)