Will Humana Stock See Higher Levels After A 15% Rise In A Month?

HUM: Humana logo
HUM
Humana

Humana stock (NYSE: HUM) has seen about a 15% rise in a month, outperforming the broader S&P500 index, up 2%. Looking at the longer term, the S&P 500 index, with 40% gains since late 2019, has fared slightly better than Humana, up 35%. Despite its recent rise, HUM stock appears to have more room for growth, as discussed below.

This 35% rise in HUM stock since late 2019 can be attributed to 1. Humana’s revenue rising a significant 52% to $99 billion over the last twelve months, compared to $65 billion in 2019, 2. a 7% fall in its total shares outstanding to 124 million, driven by $5.8 billion spent on share repurchases over this period, partly offset by 3. a 17% fall in the company’s P/S ratio to 0.6x trailing revenues currently, compared to 0.8x in 2019. The increase in revenue and a fall in shares outstanding has meant that Humana’s revenue per share rose a stellar 63% to $797 over the last twelve months, vs. $488 in 2019. Our dashboard on Why Humana Stock Moved has more details.

Relevant Articles
  1. As Streaming Business Approaches Profitability, Can Disney Stock Double To $200?
  2. BP Stock Flat This Year, What Now?
  3. Should You Pick FedEx Stock At $250 Ahead of Q4 Results?
  4. Has The 737 MAX Clipped Boeing’s Wings? Is Airbus A Better Pick?
  5. American International Group Stock Is Up 9% YTD, What’s Next?
  6. Roku Stock Can Rise To $70 As Cash Flows Surge

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.

Last week, the company reported upbeat Q2’23 results, with the top line expanding 13% y-o-y to $26.7 billion, compared to the $26.2 billion consensus estimate. Similarly, its bottom line of $8.94 on a per-share and adjusted basis was above the $8.86 consensus estimate. The company also raised its full-year outlook for Medicare Advantage members, with expected 18% growth over 2022 membership. Furthermore, the company’s medical ratio – the percentage of premiums it spends on medical care – came in slightly lower than the street estimates. Humana also stated that the surge in demand for elective surgeries and outpatient services has stabilized, implying that the costs may not see any significant growth in 2023, contrary to street expectations. These factors cheered investors, resulting in a surge in HUM stock in the recent trading sessions.

Looking at valuation, HUM stock appears to have more room for growth, despite its recent rise. At its current level of $495, HUM stock is trading at 17x forward earnings estimate of $28.30 on a per share and adjusted basis for 2023, compared to its last three-year average of 19x. We believe that investors can still buy Humana stock for double-digit gains, assuming Humana will catch up to its historical P/E multiple, especially with looming concerns of high medical costs being put to rest.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

Returns Aug 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 HUM Return 8% -3% 142%
 S&P 500 Return -2% 18% 102%
 Trefis Multi-Strategy Portfolio -3% 25% 301%

[1] Month-to-date and year-to-date as of 8/8/2023
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates