Is There More Upside For Humana Stock?
Humana stock (NYSE: HUM) has seen a 6% rise this year, outperforming the broader S&P500 index, down 21%. Even if we look at the longer term, HUM stock, with 99% returns from levels seen in late 2017, has significantly outperformed the S&P 500 index, up 41%. However, HUM stock now looks fairly valued at around $500, as discussed below.
This 99% rise in HUM stock since late 2017 can primarily be attributed to 1. Humana’s revenue rising a significant 66% to $89.4 billion over the last twelve months, compared to $53.8 billion in 2017, 2. a 20% rise in the company’s P/S ratio to 0.7x trailing revenues currently, compared to 0.6x in 2017, and 3. a 12% fall in its total shares outstanding to 127 million, driven by $5.1 billion spent on share repurchases over this period. The increase in revenue and a fall in shares outstanding has meant that Humana’s revenue per share rose 90% to $706 over the last twelve months, vs. $372 in 2017. Our dashboard on Why Humana Stock Moved has more details.
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Humana’s top-line growth has been driven by a steady rise in its retail membership base to 10.1 million currently, compared to 9.2 million in 2017. Earlier this year, Humana cut its 2022 forecast for Medicare membership growth by about half from 325K to 375K members earlier to 150K to 200K members. The company is facing challenges in retaining its clientele with higher than anticipated terminations during the 2022 enrollment window. The company’s management cited increased competition as the reason for the rise in terminations.
However, the company’s management recently stated that it expects Medicare Advantage enrollments to bounce back in 2023. Furthermore, Humana expects its profits to rise 14% annually for the next three years. [1] There are reports of Humana’s interest in acquiring Cano Health (NASDAQ: CANO), a primary care provider, primarily serving Medicare Advantage members. [2] It will be interesting to see how this story unfolds given that Humana has a first right of refusal on Cano’s sale.
Looking at the stock valuation, HUM appears to be reasonably priced at $494. At its current levels, HUM stock is trading at 19.8x its forward earnings estimate of $25.00 on a per share and adjusted basis (based on the company’s recently provided guidance), compared to the last three-year average of 19.4x, implying that HUM stock is appropriately priced.
While HUM stock looks appropriately priced, it is helpful to see how Humana’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for UnitedHealth Group vs. Pool Corporation.
What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.
| Returns | Sep 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| HUM Return | 3% | 6% | 142% |
| S&P 500 Return | -5% | -21% | 68% |
| Trefis Multi-Strategy Portfolio | -9% | -23% | 204% |
[1] Month-to-date and year-to-date as of 9/23/2022
[2] Cumulative total returns since the end of 2016
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- Humana’s Press Release, Sep 15, 2022 [↩]
- Humana, CVS Circle Cano Health as Potential Buyers, Laura Cooper and Dana Cimilluca, The Wall Street Journal, Sep 22, 2022 [↩]