On February 2nd, Humana Inc. (Hum) reported fourth-quarter 2008 earnings per share of $1.03 compared to the $1.43 for the same period in 2007 and a street consensus of $1.06.
Higher expenses from the prescription drug plan (PCP) were one of the largest contributing factors to a 28.4% decrease in profit. Revenue for the same period increased from $6.34 billion to $7.49 billion, primarily driven by an increase in Medicare Advantage memberships.
The company has predicted earnings for 2009 will be between $5.90 and $6.10 (full year). We continued to make substantial operational progress in 2008 that enables us to forecast significant growth in 2009 EPS,” Humana president and CEO Michael McCallister said in a news release. The catalyst for this growth is the projected progress by Medicare Advantage. The good news is that the program is currently quite successful. Long term success will be driven by the ability to keep medical costs 15% below Original Medicare. Customer loyalty is also very high, with less than 1% of members leaving to go back to Original Medicare. However, relying to heavily on Medicare leaves Humana particularly vulnerable to changes in government policy.
Shares of Humana rallied in response to the numbers, primarily due to 09 outlook. The stock has been performing well as of late, but still down ~2% in total.