Should You Pick Humana Over CSX Stock For The Next Three Years?

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We believe Humana stock (NYSE: HUM) is a better pick than CSX stock (NYSE: CSX), given its better prospects. Although these companies are from different sectors, we compare them because they have a similar market capitalization of around $61 billion, and both are part of the broader S&P500 index. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.

Interestingly, CSX stock has had a Sharpe Ratio of 0.5 since early 2017, lower than 0.6 for HUM and the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Looking at stock returns, both have underperformed vis-à-vis broader markets amid slowing economic growth. While CSX is down 1% this year, HUM is down 4%, and the S&P500 index is up 11%. There is more to the comparison, and in the sections below, we discuss why we believe HUM will offer better returns than CSX in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of CSX vs. HumanaWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

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1. Humana’s Revenue Growth Is Better

  • Humana’s top-line expansion has fared better than CSX in recent years. While CSX’s revenue rose at an 8.5% average annual rate in the last three years, Humana’s sales grew at an average rate of 12.8%.
  • CSX’s revenue growth between 2019 and 2021 can partly be attributed to its Trucking segment sales. CSX acquired Quality Carriers – a trucking company focused on bulk liquid chemicals transportation – in 2021, bolstering revenue growth.
  • CSX has also benefited from a robust pricing environment. CSX’s total volume of carloads remained flat between 2019 and 2022, while its average revenue per unit rose 14%, driving its freight revenue growth.
  • Humana’s top-line growth has been driven by individual Medicare Advantage membership growth and higher per-member medical premiums.
  • The company saw a modest rise in its total medical membership base to 17.1 million currently, compared to 16.7 million in 2019.
  • The Enclara acquisition in 2020 has also bolstered Humana’s top-line growth.
  • Looking at the last twelve months period, Humana’s 10.5% top-line growth fares better than 7.8% for CSX.
  • Our CSX Revenue Comparison and Humana Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, sales for CSX are expected to see tepid growth in the near term due to concerns over rising microenvironment risks, elevated costs, a continued rise in interest rates, and a potential recession. In contrast, Humana should continue to benefit from increased memberships and premiums driving its top-line growth.

2. CSX Is More Profitable 

  • CSX’s operating margin increased slightly from 35.4% in 2019 to 35.6% in 2022, while Humana’s operating margin contracted from 4.9% to 4.3% over this period.
  • Looking at the last twelve-month period, CSX’s operating margin of 34.5% fares far better than 4.7% for Humana.
  • Our CSX Operating Income Comparison and Humana Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Humana fares better. While CSX’s 29% debt as a percentage of equity is higher than 19% for Humana, the latter’s 56% cash as a percentage of assets is higher than 3% for CSX, implying that Humana has a better debt position and more cash cushion.

3. The Net of It All

  • We see that Humana has seen better revenue growth and financial position. On the other hand, CSX is more profitable.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Humana is the better choice of the two, primarily due to its superior expected revenue growth.
  • Even if we compare the current valuation multiples to the historical averages, HUM fares better. CSX is currently trading at 4.1x revenues vs. the last five-year average of 5.0x. In contrast, HUM stock trades at 0.6x revenues vs. the last five-year average of 0.8x.
  • Our CSX (CSX) Valuation Ratios Comparison and Humana (HUM) Valuation Ratios Comparison dashboards have more details.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 19% for HUM over this period vs. a 6% expected return for CSX, based on Trefis Machine Learning analysis – CSX vs. Humana – which also provides more details on how we arrive at these numbers.

While HUM may outperform CSX in the next three years, it is helpful to see how CSX’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Sep 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CSX Return 1% -1% 156%
 HUM Return 7% -4% 142%
 S&P 500 Return -5% 11% 91%
 Trefis Reinforced Value Portfolio -7% 22% 527%

[1] Month-to-date and year-to-date as of 9/27/2023
[2] Cumulative total returns since the end of 2016

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