Humana Plunges After Huge Beat Gains; Centene is better than recession resistance

humane (HUM) topped second-quarter earnings estimates early Wednesday, but raised forecasts to a much lesser extent, in part due to concerns about Covid in the second half. HUM stock plunged early in the trading action, but remained in the buy range, along with a host of other managed care players.




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Centene (CNC), the No. 1 stock in one of the market‘s leading groups, beat second-quarter earnings estimates early Tuesday and raised its full-year guidance. To top it off, CNC stock hit an all-time high, despite an overall lousy day for the stock market.

Tuesday, Molina Health (MOH), which reports this afternoon, moved closer to a buy point. Cigna (CI), whose earnings are expected next week, moved back into the buy range. UnitedHealth (UNH), part of the elite IBD Leaderboard equity portfolio, is also in the buy range after its second-quarter earnings helped ignite a fire under the group.

CNC and HUM stocks are both part of the IBD Big Cap 20 list.

The managed care industry group has risen to the top of the market as investors seek companies that combine growth with recession-proof revenue streams. But Centene is among the industry leaders whose company is poised to not only stay on track in a recession, but also get a bump.

Impact of the recession on the managed care group

In a July 14 note titled “Recession Planning,” Jefferies analyst David Windley upgraded Centene to buy-hold, underscoring its Medicaid managed care focus. At the same time, he raised his price target for CNC shares to 115 from 82. His reasoning: With Medicaid capturing about two-thirds of people who lose employer coverage during a recession, Windley expects to a mid-single-digit increase in Centene percentage. medical membership, which equates to higher profits. “Teen EPS growth during a recession is solid,” he wrote.

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

Centene’s relatively strong positioning heading into a recession is somewhat of a reversal from the start of the year. The impending end of the public health emergency, which would trigger a re-determination of eligibility for those who obtained Medicaid coverage during the pandemic, threatened significant coverage losses for Medicaid managed care actors, particularly Centene. and Molina. But the emergency is now seen as likely to last until 2023, and a recession could postpone it further.

Medicare Advantage is also considered well protected against a recession.

Human gains

Results: Humana posted second-quarter earnings of $8.67 per share, up 26% from a year ago, and $1 above analysts’ estimates, according to FactSet. Revenue rose 15% to $27.72 billion, ahead of $23.47 billion in views.

Outlook: Humana raised its full-year EPS forecast to $24.75 from $24.50 previously. Analysts were expecting $24.65.

Humana also back

The company said lower utilization among its Medicare Advantage members and the absence of Covid headwinds to earnings fueled the pace of earnings and the increase in guidance. However, management said the guidance assumes Covid will become a bigger issue in the fall and an EPS drag of 50 cents. Humana also plans to use some of its second-quarter windfall to increase Medicare Advantage marketing spend.

If Covid costs fall below expectations in the second half, Humana said it could use some of the upside to boost shareholder returns.

The sale of its stake in Kindred at Home’s Hospice and Personal Care business is also expected to result in a loss of 65 cents for EPS.

HUM-share

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

Centennial Earnings

Results: Centene’s earnings rose 42% from a year ago to $1.77 per share, 9 cents ahead of second-quarter views. Revenue rose 16% to $35.94 billion. The health benefit ratio, or cost as a percentage of premiums, came in at 86.7%, down from 88.3% a year ago and improving from estimates of 87.8 %.

The growth reflected Medicaid gains, Centene’s Medicare business growth of 25% and acquisitions.

Outlook: The company raised its full-year EPS outlook to a range of $5.60 to $5.75, up a nickel from the June forecast. Analysts had forecast $5.60. Centene also added $3 billion to its share buyback program.

CNC stock

Centene stock rose 1.3% to 93.15 in Tuesday’s trading action. CNC stock is now just beyond a buy range up to 91.81. The buy range is up to 5% above the buy point of 87.44 from a double bottom basis, according to MarketSmith.

Molina Healthcare revenue

Estimates: Molina would earn $4.33 per share in the second quarter, up 27%. Revenue is expected to rise 13% to $7.69 billion.

Results: See you Wednesday afternoon.

Ministry of Health stock

Molina shares rose 0.3% to 308.68 on Tuesday. The Health Department stock is now 2% off a buy point of 316.01 from a double bottom basis.

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