Humana Inc. (HUM) | Investment Case

1. Company Snapshot

1.a. Company Description

Humana Inc., together with its subsidiaries, operates as a health and well-being company in the United States.It operates through three segments: Retail, Group and Specialty, and Healthcare Services.The company offers medical and supplemental benefit plans to individuals.

It also has a contract with Centers for Medicare and Medicaid Services to administer the Limited Income Newly Eligible Transition prescription drug plan program; and contracts with various states to provide Medicaid, dual eligible, and long-term support services benefits.In addition, the company provides commercial fully insured medical and specialty health insurance benefits comprising dental, vision, and other supplemental health benefits; and administrative services only products to individuals and employer groups, as well as military services, such as TRICARE T2017 East Region contract.Further, it offers pharmacy solutions, provider services, and home solutions services, such as home health and other services to its health plan members, as well as to third parties.

As of December 31, 2021, the company had approximately 17 million members in medical benefit plans, as well as approximately 5 million members in specialty products.Humana Inc.was founded in 1961 and is headquartered in Louisville, Kentucky.

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1.b. Last Insights on HUM

Breaking News: Humana Inc has recently granted prior authorization approval for the ReWalk 7 Personal Robotic Exoskeleton, enhancing access to cutting-edge solutions for individuals with spinal cord injury. This approval, along with UnitedHealthcare's in November, covers 47% of all Medicare Advantage enrollees. The reimbursement coverage is expected to boost Lifeward's revenue and cash flow. Humana's Medicare Advantage plan has taken a significant step in supporting innovative medical technologies. Analysts at Deutsche Bank recommend a buy with a target price.

1.c. Company Highlights

Last Price	257.85
Change Percentage	1.91%
Open	262.52
Previous Close	253.02
Market Cap ( Millions)	31012
Volume	1600467
Year High	315.35
Year Low	206.87
M A 50	262.55
M A 200	258.68

FCF Yield	4.99%
Dividend Yield	1.37%
ROE	7.28%
Debt / Equity	68.07%
Net Debt / EBIDTA	232.72%
Price To Book	1.68
Price Earnings Ratio	24.08
Price To FCF	20.05
Price To sales	0.25
EV / EBITDA	12.32

2. Humana's Q3 Earnings: A Closer Look at Financial Performance

Humana reported a strong third quarter, with actual EPS coming in at $3.24, beating estimates of $2.93. The company's revenue growth was in line with expectations, driven by solid execution and underlying fundamentals, including membership and patient growth. The revenue growth is expected to continue, with analysts estimating a 4.4% increase in revenues for the next year. With a current P/E Ratio of 24.75, the market is pricing in a certain level of growth, which Humana seems to be on track to deliver.

Publication Date: Nov -06

                                    📋 Highlights
                                    Q3 Performance::
                                                Solid results aligned with expectations; full-year adjusted EPS outlook reaffirmed at ~$17 with $150M incremental investments.
Stars Program Mitigation::
                                                Disappointed Stars results but trending toward top quartile; ~43-45% membership in contract H5216 to be deconsolidated over 2-3 cycles.
Membership Growth::
                                                Mid-single-digit MA market growth expected; 43-45% membership in contract H5216 targeted for rebalancing to reduce risk.
Clinical Excellence::
                                                Stars outlook improving, with $150M invested in mitigation programs and value-based partnerships.
Capital Deployment::
                                                Enclara Pharmacia sale completed; debt-to-cap ratio target of ~40% and $150M incremental Stars investments highlighted.

                                

Business Drivers and Clinical Excellence

The company's focus on four key business drivers - product and experience, clinical excellence, highly efficient operations, and capital allocation and growth in CenterWell and Medicaid - is driving its strategy. Clinical excellence is a key area of focus, with the company working to improve its Stars performance, which has been disappointing but is trending in the right direction. As Jim Rechtin mentioned, "the outlook for Bonus Year '28 Stars continues to trend in the right direction," indicating a positive outlook for the company's clinical excellence initiatives.

Margin and Growth Prospects

The company's margin is expected to be relatively consistent with its overall margin, although some contracts will be above and others below. Humana is prioritizing long-term value and NPV, which is driving its strategy. The company's focus on maximizing customer lifetime value and NPV through exceptional experience, benefit design, and member and product mix is expected to drive growth. With a mid-single-digit growth expected in the MA market, Humana is well-positioned to capitalize on this trend.

Valuation and Dividend Yield

With a P/B Ratio of 1.72 and an EV/EBITDA of 12.6, Humana's valuation appears reasonable. The company's Dividend Yield of 1.34% is also attractive, providing a relatively stable source of return for investors. As the company continues to focus on its business drivers and clinical excellence, it is well-positioned to deliver long-term value to its shareholders.

Operational Efficiency and Capital Deployment

Humana's focus on highly efficient operations and capital allocation is driving its growth prospects. The company's sale of a non-core asset, Enclara Pharmacia, and the pending acquisition of Villages Health demonstrate its commitment to optimizing its portfolio. With a Net Debt / EBITDA ratio of 2.33, Humana's balance sheet appears manageable, allowing the company to continue investing in its business.

3. NewsRoom

Humana, Mark Cuban's Cost Plus Drugs Working On Partnership

Dec -04

Source: forbes.com

First Look: Insurers, Auto Rules, AI and Fed Jitters

Dec -04

Source: gurufocus.com

Lifeward Broadens Reimbursement Coverage for ReWalk 7 Personal Robotic Exoskeleton as Humana Medicare Advantage Plan Issues Prior Authorization Approval

Dec -03

Source: globenewswire.com

Berman Tabacco Announces Investigation of Humana, Inc. (NYSE:HUM)

Dec -02

Source: globenewswire.com

Humana (NYSE:HUM) Stock Acquired Rep. Lisa C. McClain

Nov -27

Source: defenseworld.net

Humana Inc. (NYSE:HUM) Given Consensus Rating of “Hold” by Analysts

Nov -26

Source: defenseworld.net

Berman Tabacco Announces Investigation of Humana, Inc. (NYSE:HUM)

Nov -24

Source: globenewswire.com

AXQ Capital LP Acquires 2,166 Shares of Humana Inc. $HUM

Nov -22

Source: defenseworld.net

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (11.84%)

6. Segments

Insurance

Expected Growth: 11.1%

Humana's growth is driven by increasing Medicare Advantage penetration, expansion in individual commercial markets, and investments in healthcare services and technology, positioning the company for long-term success.

Centerwell

Expected Growth: 10.2%

Centerwell's growth is driven by increasing demand for value-based primary care services, particularly among Medicare Advantage members. The acquisition of Partners in Primary Care and the expansion of existing centers will further fuel growth.

Eliminations/Corporate

Expected Growth: 4.5%

Humana's Eliminations/Corporate segment growth is driven by increasing demand for health insurance, expansion of Medicare Advantage and Medicaid programs, and strategic acquisitions, further solidifying its position as a leading health insurance provider.

7. Detailed Products

Individual and Family Plans

Humana offers individual and family plans that provide health insurance coverage to individuals and families who are not covered by an employer-sponsored plan.

Group Health Plans

Humana offers group health plans to employers who want to provide health insurance coverage to their employees.

Medicare Advantage Plans

Humana offers Medicare Advantage plans to seniors and people with disabilities who are eligible for Medicare.

Medicare Supplement Plans

Humana offers Medicare Supplement plans to seniors who want to supplement their Medicare coverage.

Dental and Vision Plans

Humana offers dental and vision plans to individuals and groups who want to add dental and vision coverage to their health insurance plan.

Pharmacy Benefit Management

Humana offers pharmacy benefit management services to help manage prescription drug costs and improve health outcomes.

Wellness and Population Health

Humana offers wellness and population health services to help individuals and groups improve their health and reduce healthcare costs.

8. Humana Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Humana Inc. operates in a highly regulated industry, and the threat of substitutes is moderate. While there are alternative healthcare providers, the complexity of the healthcare system and the need for specialized services limit the threat of substitutes.

Bargaining Power Of Customers

Humana Inc. has a large customer base, and individual customers have limited bargaining power. However, large employer groups and government contracts may have more negotiating power.

Bargaining Power Of Suppliers

Humana Inc. relies on a network of healthcare providers, and the bargaining power of suppliers is moderate. While some providers may have more negotiating power, Humana's scale and market presence mitigate this threat.

Threat Of New Entrants

The healthcare industry has high barriers to entry, including regulatory hurdles and significant capital requirements. This limits the threat of new entrants.

Intensity Of Rivalry

The healthcare industry is highly competitive, with multiple players vying for market share. Humana Inc. faces intense competition from other health insurers, as well as new entrants and disruptors.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	42.10%
Debt Cost	5.34%
Equity Weight	57.90%
Equity Cost	6.44%
WACC	5.97%
Leverage	72.72%

11. Quality Control: Humana Inc. passed 4 out of 9 key points

Strong Liquidity

Low Deb

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

CVS Health

A-Score: 5.3/10

Value: 4.6

Growth: 4.0

Quality: 2.6

Yield: 6.0

Momentum: 7.5

Volatility: 7.0

1-Year Total Return ->

Boston Scientific

A-Score: 5.1/10

Value: 0.9

Growth: 6.6

Quality: 6.7

Yield: 0.0

Momentum: 6.5

Volatility: 9.7

1-Year Total Return ->

Elevance Health

A-Score: 4.8/10

Value: 6.6

Growth: 5.7

Quality: 6.8

Yield: 3.0

Momentum: 0.5

Volatility: 6.3

1-Year Total Return ->

UnitedHealth

A-Score: 4.3/10

Value: 4.9

Growth: 6.1

Quality: 5.1

Yield: 4.0

Momentum: 0.5

Volatility: 5.0

1-Year Total Return ->

Humana

A-Score: 4.2/10

Value: 6.0

Growth: 5.3

Quality: 5.2

Yield: 1.0

Momentum: 3.0

Volatility: 4.7

1-Year Total Return ->

Centene

A-Score: 3.6/10

Value: 9.3

Growth: 5.7

Quality: 3.3

Yield: 0.0

Momentum: 0.0

Volatility: 3.3

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

-2.18%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

5.97%

Humana Inc. - US4448591028

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on HUM

1.c. Company Highlights

Less Volatile

Better Quality

Higher Growth

Earnings Beats

Revenues Beats

Stable Momentum

Average Growth

Weak Momentum

Average Yield

Medium Volatility

Fairly Valued

Average Quality

2. Humana's Q3 Earnings: A Closer Look at Financial Performance

Business Drivers and Clinical Excellence

Margin and Growth Prospects

Valuation and Dividend Yield

Operational Efficiency and Capital Deployment

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (11.84%)

6. Segments

Insurance

Expected Growth: 11.1%

Centerwell

Expected Growth: 10.2%

Eliminations/Corporate

Expected Growth: 4.5%

7. Detailed Products

Individual and Family Plans

Group Health Plans

Medicare Advantage Plans

Medicare Supplement Plans

Dental and Vision Plans

Pharmacy Benefit Management

Wellness and Population Health

8. Humana Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Humana Inc. passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

257.85$

Current Price

257.85$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA