Humana Inc. (HUM) announced recently that it intends to reduce its workforce by approximately 5% (1,400 jobs on a net basis) in 2010 due to a reduction in enrollment. Jobs will be cut through a combination of attrition, process efficiencies, outsourcing and position eliminations.
On a gross basis, the insurance giant intends to cut 2,500 jobs nationwide in 2010. However, during the course of the year the company intends to add about 1,100 jobs in areas such as medical cost containment capabilities, pharmacy management and specialty products.
Humana announced further that all employees impacted by the workforce reduction will have a 2 month transition period at the company. Furthermore, those failing to secure another position within the company will be offered a severance package and their health and other benefits will be continued.
The jobs cut is necessitated by the drop in medical enrollment at Humana in fiscal 2009. Overall medical membership declined approximately 11% (almost 1.3 million members) in 2009. Humana ended 2009 with about 10.3 million members. Medicare membership saw the greatest fall. Medicare membership was down by about 23.7% to 3.4 million.
Even though the recently announced fourth quarter 2009 results were favorable helped by the strong performance of the Government segment, we remain concerned about the weakness in the commercial segment. Humana and other insurers are facing a drop in enrollment in their commercial segment. Other insurers like Aetna Inc. (AET) and Cigna Corp. (CI) have also resorted to job cuts to tide over difficult times.
The reduction in workforce is part of an ongoing administrative cost-cutting initiative of Humana. The company believes the move will help it create a more efficient, agile infrastructure while providing the resources to invest in new avenues of growth.
Guidance Backed
Humana does not expect the trimming of its workforce to affect its previously issued earnings guidance for fiscal 2010. Consequently, the company continues to expect to earn between $5.15 and $5.35 per share per share in 2010. The Zacks Consensus Estimate for fiscal 2010 is $5.48.
Our Recommendation
Humana currently has a Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our Neutral recommendation on Humana. The Neutral recommendation implies that the stock is expected to perform inline with the overall U.S. equity market over the next six to twelve months. Therefore, we advise investors to retain the stock over this time period.
Read the full analyst report on “HUM”
Read the full analyst report on “AET”
Read the full analyst report on “CI”
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