Strong Cash Yield: Is Humana Stock A Buy?

Humana (HUM) could be a good pick for your portfolio, with its high cash yield, good fundamentals, and discounted valuation. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market

What Is Happening With HUM

HUM may be down -5.3% so far this year but is now trading at P/S (Price-to-Sales) ratio that is at a meaningful discount to its 3-month and 2-year highs, and also belowits 3-year average.

The stock may not reflect it yet, but here is what’s going well for the company: CenterWell Primary Care patient count grew by nearly 15% this year. Humana also secured contracts like Mercy Health, retaining thousands of Medicare Advantage and Medicaid patients. Strategic exits from unprofitable Medicare Advantage plans, combined with improved retention, led to a reduced projected membership decline for 2025. Full-year adjusted earnings guidance was affirmed, reflecting ongoing strength.

HUM Has Good Fundamentals

• Good Cash Yield: Not many stocks offer free cash flow yield of 5.4%, but Humana stock does
• Strong Margin: Last 12 month operating margin of 0.0%
• Growth: Last 12 revenue growth of 9.9% – low growth, but this selection is all about high yield and margin
• Valuation: HUM stock currently trading at 53% below 2Y high, 19% below 1M high, and at a PS lower than 3Y average.

Below is a quick comparison of HUM fundamentals with S&P medians.

*LTM: Last Twelve Months

But What Is The Risk Involved?

While HUM stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. HUM plunged 77% in the Dot-Com crash and 78% during the Global Financial Crisis. In 2018, it dropped over 33%, while the Covid sell-off took it down 44%. Even the inflation shock wasn’t kind, with a 24% dip. The stock’s solid fundamentals matter, but history shows it’s not immune when markets turn south. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read HUM Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

For more details and our view, see Buy or Sell HUM Stock.

Stocks Like HUM

Not ready to act on HUM? Consider these alternatives:

1. Salesforce (CRM)
2. Airbnb (ABNB)
3. PayPal (PYPL)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Dipped last month & meaningfully below 2Y high
3. Current P/S < last few year average
4. Strong operating margin with no instances of large margin collapse
5. High free cash flow yield

A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:

• Average 6-month and 12-month forward returns of 10.4% and 20.4% respectively
• Win rate (percentage of picks returning positive) of about 74% for 12-month period
• Strategy consistent across market cycles

Multi Asset Portfolios Offer More Upside With Less Risk

Stocks soar and sink but bonds commodities and other assets balance the ride. A multi asset portfolio keeps returns steadier and reduces single market risk.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices