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Corvex Exits Stake in Humana

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Corvex exits stake in Humana

Corvex Management sold its stake in Humana (HUM). The position accounted for 0.43% of the fund’s total portfolio in the third quarter.

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Overview of Humana

Humana is a leading healthcare and well-being company. It’s a private managed care organization. As of December 31, 2014, HUM had about 13.8 million members in its medical benefit plans and roughly 7.7 million specialty products users.

According to the Centers for Medicare and Medicaid Services, or CMS, Humana was responsible for about 70% of individual Medicare Advantage, or MA, net enrollment growth in January. People sign up for MA—a substitute for the original Medicare program—via private health insurance companies. Peers of HUM such as Aetna (AET), UnitedHealth Group (UNH), and Cigna (CI) focus more on commercial enrollments.

Humana misses earnings and revenue estimates

In the fourth quarter of 2014, Humana reported revenue of $12.3 billion, up 21% year-over-year, or YoY. Of this total, $8.65 billion came from the MA program. Commercial health plans represented 18% of total revenue.

Net income in 4Q14 was $145 million compared to a net loss of $30 million in 4Q13. Adjusted diluted EPS (earnings per share) was $1.09, up 36% YoY. This was mainly due to a reduced number of shares that resulted from the company’s share repurchasing initiative.

Individual MA enrollments were up 18.2% YoY to 2.4 million. In terms of individual MA net growth, 73% stemmed from HMO (health maintenance organization) offerings.

In the full-year 2014, EPS was $7.51. This was just above the midpoint of the guidance given by management.

In the full-year 2015, Humana expects earnings of $8.50 to $9 per share with an increase of 17% at the midpoint.

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Returns to shareholders

HUM is planning to buy back $1 billion in stock by June 2015. The company has already repurchased $630 million in shares.

On February 18, HUM declared a quarterly dividend of $0.28, which was in line with previous offerings. For more diversified exposure, investors can invest in the Health Care Select Sector SPDR Fund (XLV). HUM accounts for 0.9745% of XLV and 0.93% of the iShares U.S. Healthcare ETF (IYH).

Humana’s Medicare funding outlook

In February, the CMS estimated that Medicare funding could decrease by 0.95% in 2016, but recently revised that estimate to an increase of 1.25%. According to an earlier Wall Street Journal report, Humana said funding would likely fall by 1.25%–1.75%. However, a more recent Wall Street Journal report noted that Humana now expects Medicare Advantage funding to grow by around 0.8% in 2016.

To learn more about HUM, read Humana’s valuations exceed Anthem, Aetna, and Cigna in 4Q14.

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