HUM goes in for deal renewal – Analyst Blog

In an attempt to retain its presence in Idago, on Tuesday, Humana Inc. (HUM) announced the renewal of its Medicare Advantage Network contract with two leading Idago-based hospitals, Eastern Idago regional Medical Center (“EIRMC”) and West Valley Medical Center (“WVMC”). Humana Inc. covers approximately 30,500 members in Idago itself.

 

According to the renewed agreement, both the hospitals will continue to provide in-network medical care to all Medicare Advantage members, who are registered for products offered by the company. These benefits will be simultaneously available to all in-patient, out-patients and emergency services of both the hospitals. Both EIRMC and WVMC are registered under the Hospital Corporation of America (“HCA”).

 

Besides, both the hospitals are covered for all of Humana Inc.’s health insurance benefits under Health Maintenance Organization (“HMO”), Private Fee-For-Service (“PFFS”) and Preferred Provider Organization (“PPO”) plans.

 

 

Over the last 30 days, twelve of 15 analysts covering Humana Inc. have raised their estimates for the second quarter of 2010, while no downward revisions were witnessed. Currently, the Zacks Consensus Estimate for the second quarter is operating earnings of $1.62 per share, which would be down by 2.8% from the year-ago quarter.

 

The absence of downward estimate revisions for the second quarter indicates a likelihood of upward pressure on the performance of the stock in the near term.

 

With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 2.8%. This implies that Humana Inc. has surpassed the Zacks Consensus Estimate by 2.8% over that period.

 

The downside potential for the estimate in the second quarter, essentially a proxy for future earnings surprises, currently stands at 0.2%.

 

The renewal of agreements with two major hospitals in Idago is expected to be a significant step for the company to persistently provide health care benefits to its Medicare Advantage members in the state. Further, increasing access to quality health care will allow Humana Inc.’s members to have greater access to services and providers, giving them an improved sense of well-being and health. This will also help Humana Inc. in retaining its clients while also increasing the market share in the upcoming quarters.

 

However, as per the recently passed health care reform, the Medicare Advantage program is expected to be cut back, which may impel some seniors to drop the extra benefits that it provides. The Medicare Advantage program costs the government substantially more per person than regular Medicare. This is a bad news for Humana Inc., which is heavily reliant on this segment. Hence, we remain on the edge presently to observe further developments in this area.