Buy or Sell Humana Stock?

Humana (HUM) stock has fallen 21% during the past day, and is currently trading at $207.93. We believe there is a near-equal mix of good and bad in HUM stock given its overall Moderate operating performance and financial condition. This is aligned with the stock’s Moderate valuation because of which we think it is Fairly Priced.

Below is our assessment:

You can’t predict what happens to individual stocks, but you can prepare. See how High Quality Portfolio helps you.

Let’s get into details of each of the assessed factors but before that, for quick background: With $25 Bil in market cap, Humana provides medical benefit plans across retail, group, specialty, and healthcare services segments, serving approximately 17 million members as of December 2021.

[1] Valuation Looks Moderate

This table highlights how HUM is valued vs broader market. For more details see: HUM Valuation Ratios

[2] Growth Is Strong

• Humana has seen its top line grow at an average rate of 11.4% over the last 3 years
• Its revenues have grown 9.9% from $115 Bil to $126 Bil in the last 12 months
• Also, its quarterly revenues grew 11.1% to $33 Bil in the most recent quarter from $29 Bil a year ago.

This table highlights how HUM is growing vs broader market.

[3] Profitability Appears Very Weak

• With cash flow margin of 1.6%, it generated nearly $2.0 Bil in operating cash flow over this period
• For the same period, HUM generated nearly $1.3 Bil in net income, suggesting net margin of about 1.0%

This table highlights how HUM profitability vs broader market.

[4] Financial Stability Looks Strong

• HUM Debt was $13 Bil at the end of the most recent quarter, while its current Market Cap is $25 Bil. This implies Debt-to-Equity Ratio of 50.3%
• HUM Cash (including cash equivalents) makes up $22 Bil of $50 Bil in total Assets. This yields a Cash-to-Assets Ratio of 44.5%

[5] Downturn Resilience Is Moderate

HUM saw an impact slightly worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• HUM stock fell 24.6% from a high of $563.00 on 3 November 2022 to $424.29 on 13 July 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $524.21 on 16 October 2023 , and currently trades at $207.93

 
2020 Covid Pandemic

• HUM stock fell 43.6% from a high of $380.20 on 13 February 2020 to $214.43 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 30 April 2020

 
2008 Global Financial Crisis

• HUM stock fell 78.4% from a high of $86.98 on 14 January 2008 to $18.77 on 5 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 7 November 2011

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.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, 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. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.