Health insurer Humana Inc (HUM.N) posted a sharply higher third-quarter profit that blew past Wall Street targets on Monday, helped by lower medical costs, and projected growth in its Medicare plans next year.
Humana, which is highly dependent on its Medicare plans for the elderly, also raised its full-year earnings forecast. The company's shares rose 1 percent in morning trading.
The stock has been a more popular pick than those of rivals this year. Investors have become more comfortable with the outlook for Medicare after the passage of the U.S. healthcare reform law, while changes affecting plans for individuals and small businesses are keeping Wall Street on edge.
Humana's comments about growth for its Medicare Advantage plans for next year help give investors confidence, said Susquehanna Financial Group analyst Chris Rigg. "It's just reassuring people that you're unlikely to see any draconian changes in their most significant line of business," Rigg said.
While giving some general comments about 2011, Humana plans to wait until its investor meeting later this month to provide a specific profit projection for next year. Health insurers have been wary of providing a detailed view of 2011 before the U.S. government finalizes new requirements for spending on medical costs.
Such clarity could come soon, but investors are hesitant to invest in the group while next year is murky.
Humana's quarterly net income rose to $393.2 million, or $2.32 per share, from $301.5 million, or $1.78 per share, a year earlier. Analysts on average expected $1.66 per share, according to Thomson Reuters I/B/E/S.
The profit was also well ahead of Humana's forecast of $1.65 to $1.75 per share. Revenue rose 9 percent to $8.42 billion.