Humana Inc. (HUM) is set to report third-quarter 2014 earnings results on Nov 7, 2014. Last quarter, it posted a 0.00% positive earnings surprise. Let us see how things are shaping up for this announcement.
Factors Affecting the Past Quarter
Humana is well positioned with its strong Medicare business, expansion of business platform and stable credit ratings. The raised guidance for Medicare stand-alone PDP membership, in particular, increases optimism. The company has a strong capital management structure that is focused to return more value to shareholders. Humana approved a $2 billion share repurchase authorization in the third quarter of 2014 to replace the previous program of $1 billion, which had $782 million remaining to be repurchased. Additionally, the company issued senior notes of $1.75 billion in the third quarter of 2014 and expects to generate $1.73 billion in net proceeds, which will be deployed for repayment of debt of higher coupon rate, funding the new buyback program and for future share buybacks.
However, mounting expenses and competitive pressure are likely to weigh on earnings this quarter. In addition, restriction on charging higher premiums from people with pre-existing medical conditions should further increase Humana’s benefit expenses.
Earnings Whispers?
Our proven model does not conclusively show that Humana is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Humana has an ESP of –0.50%. This is because the Most Accurate estimate stands at $2.00 while the Zacks Consensus Estimate is pegged at $2.01 per share, making the difference –0.50%.
Zacks Rank: Humana’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some healthcare service providers you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Merrimack Pharmaceuticals, Inc. (MACK) has Earnings ESP of +437.50% and a Zacks Rank #1 (Strong Buy).
Medivation, Inc. (MDVN) has Earnings ESP of +7.34% and a Zacks Rank #1.
Alnylam Pharmaceuticals, Inc. (ALNY) has Earnings ESP of +9.23% and a Zacks Rank #2 (Buy).
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