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Investors Business Daily
Investors Business Daily

Humana Dips After Huge Earnings Beat; Centene Is Better Than Recession-Proof

Humana trounced Q2 earnings estimates early Wednesday, but bumped up guidance to a much-lesser extent, partly due to second-half Covid worries. HUM stock dipped in early stock market action, but remained in buy range, along with a host of other managed-care players.

Centene, the No. 1-rated stock in one of the market's top-tier groups, beat Q2 earnings estimates early Tuesday and raised full-year guidance. To top it off, CNC stock rallied to a record high, despite an overall lousy day for the stock market.

On Tuesday, Molina Healthcare, which reports this afternoon, edged toward a buy point. Cigna, whose earnings are due next week, nosed back into buy range. UnitedHealth, part of the IBD Leaderboard portfolio of elite stocks, also is in buy range after its Q2 earnings beat helped light a fire under the group.

CNC and HUM stock are both part of the IBD Big Cap 20 List.

The managed care industry group has risen to the top tier of the market as investors have sought companies that combine growth and recession-resistant revenue streams. But Centene is among the industry leaders whose business is poised to not only stay on track in a recession but to actually get a bump.

Recession Impact On Managed Care Group

In a July 14 note titled "Recession Planning," Jefferies analyst David Windley upgraded Centene to buy from hold, highlighting its Medicaid managed care focus. At the same time, he hiked his price target for CNC stock to 115 from 82. His reasoning: With Medicaid capturing about two-thirds of people who lose employer coverage amid recession, Windley expects a mid-single-digit-percentage bump in Centene's medical membership, equating to higher profits. "High-teens EPS growth through a recession is stout," he wrote.

With employer coverage bearing the brunt of recession job losses, Windley downgraded Cigna to hold at the same time.

Centene's relatively strong positioning heading into a recession is somewhat of a reversal from earlier in the year. The looming end to the public health emergency, which would trigger redeterminations of eligibility for people who gained Medicaid coverage during the pandemic, threatened big coverage losses for Medicaid managed care players, especially Centene and Molina. But the emergency is now seen as likely to last into 2023, and a recession could postpone it further.

Medicare Advantage also is seen as well-insulated from a recession.

Humana Earnings

Results: Humana posted Q2 earnings per share of $8.67, up 26% from a year ago, and $1 ahead of analyst estimates, according to FactSet. Revenue grew 15% to $27.72 billion, ahead of $23.47 billion views.

Outlook: Humana raised guidance for full-year EPS to $24.75, up from prior guidance of $24.50. Analysts were expecting $24.65.

Humana also rear

The company said that lower utilization among its Medicare Advantage members and lack of Covid headwinds to earnings fueled the earnings beat and guidance raise. However, management said guidance assumes that Covid will become a bigger issue in the fall and a 50-cent EPS drag. Humana also plans to use part of its Q2 windfall to boost marketing outlays for Medicare Advantage.

If Covid costs run below expectations in the second half, Humana said it could use part of the upside to increase shareholder returns.

The sale of its stake in Kindred at Home's Hospice and Personal Care business also is expected to be a one-time EPS drag of 65 cents.

HUM Stock

Humana stock dipped 1.5% to 485.00 early Wednesday. HUM stock is still in range from a 475.54 buy point from a 59-week consolidation.

Centene Earnings

Results: Centene earnings rose 42% from a year ago to $1.77 per share, 9 cents ahead of Q2 views. Revenue grew 16% to $35.94 billion. The health benefits ratio, or costs as a share of premiums, came in at 86.7%, down from 88.3% a year ago and improving on estimates of 87.8%.

Growth reflected Medicaid gains, 25% growth in Centene's Medicare business and acquisitions.

Outlook: The company hiked its outlook for full-year EPS to a range of $5.60-$5.75, up a nickel from guidance offered in June. Analysts had forecast $5.60. Centene also added $3 billion to its stock buyback program.

CNC Stock

Centene stock rose 1.3% to 93.15 in Tuesday stock market action. CNC stock is now just beyond a buy range that runs to 91.81. The buy range is up to 5% above the 87.44 buy point from a double-bottom base, according to MarketSmith.

Molina Healthcare Earnings

Estimates: Molina is seen earning $4.33 per share in Q2, up 27%. Revenue should rise 13% to $7.69 billion.

Results: Check back Wednesday afternoon.

MOH Stock

Molina stock rose 0.3% to 308.68 on Tuesday. MOH stock is now 2% shy of a 316.01 buy point from a double-bottom base.

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