Which Is A Better Pick – UnitedHealth Stock Or Humana?

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UNH: UnitedHealth Group logo
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UnitedHealth Group

We believe that the healthcare stocks UnitedHealth (NYSE: UNH) and Humana (NYSE:HUM) will likely see higher levels and offer similar returns in the next three years. Humana stock trades at 0.4x trailing revenues versus 1.1x for UnitedHealth, due to the latter’s superior profitability, financial position, and a slightly better revenue growth. 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. In the sections below, we discuss the possible returns for UNH and HUM 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 Humana vs. UnitedHealthWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

Firstly, looking at stock returns, UNH stock has shown strong gains of 30% from levels of $350 in early January 2021 to around $460 now, while HUM stock has faced a notable decline of 25% from levels of $410 to around $310 over the same period. This compares with an increase of about 40% for the S&P 500 over this roughly three-year period.

However, the changes in UNH and HUM stocks have been far from consistent. Returns for UNH stock were 43% in 2021, 6% in 2022, and -1% in 2023, while returns for HUM stood at 13%, 10%, and -11%, in 2021, 2022, and 2023, respectively. In comparison, the S&P 500 surged 27% in 2021, but it fell by 19% in 2022, and rose by 24% in 2023. This indicates that UNH underperformed the S&P in 2023, while HUM underperformed the S&P in 2021 and 2023.

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In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for other heavyweights in the Health Care sector including LLY, JNJ, and MRK, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. 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.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could UNH and HUM face a similar situation as they did in 2023 and underperform the S&P over the next 12 months — or will they see a strong jump? We expect both stocks to trend higher and offer similar returns in the next three years.

1. UnitedHealth’s Revenue Growth Is Better 

  • UnitedHealth’s revenue growth has been better, with a 13% average annual growth rate in the last three years, compared to 11% for Humana. For the last twelve months, both companies saw their top-line expand by around 15%.
  • UnitedHealth’s revenue growth was primarily driven by the increased demand for its OptumHealth business, which provides health care through local medical groups. For perspective, OptumHealth’s revenue grew 67% between 2020 and 2023, compared to a 44% rise in revenue for the overall company.
  • The strong growth in the Optum Health business can be attributed to a rise in the number of patients served under the company’s value-based arrangements, including at-home services.
  • 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 16.9 million currently, compared to 16.8 million in 2021.
  • The Enclara acquisition in 2020 has also bolstered Humana’s top-line growth.
  • Our UnitedHealth Group Revenue Comparison and Humana Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, both UnitedHealth and Humana are expected to see their revenue grow at a mid-single-digits average annual rate in the next three years.

2. UnitedHealth Is More Profitable

  • UnitedHealth’s operating margin of 8.7% in 2023 aligns with the level seen in 2020, while Humana’s operating margin declined from 6.5% to 3.8% over this period.
  • Looking at the last twelve-month period, UnitedHealth’s operating margin of 8.7% fares better than 3.8% for Humana.
  • Healthcare insurance companies are seeing a rise in medical costs with an increase in overall elective procedures. This has impacted its operating margin expansion in the recent past.
  • Furthermore, the U.S. Centers for Medicare & Medicaid Services recently stated that Medicare Advantage payments would rise by an average of 3.7% in 2025, falling short of the street expectations. This has weighed on both UNH and HUM stock this week, and it may impact the overall profitability in 2025.
  • Looking at financial risk, UnitedHealth fares better. UnitedHealth’s 15% debt as a percentage of equity is lower than 32% for Humana. Moreover, UnitedHealth’s 11% cash as a percentage of assets is marginally higher than 10% for Humana, implying that UnitedHealth has a better debt and cash position.

3. The Net of It All

  • We see that UnitedHealth has seen better revenue growth, profitability,  and has a better financial position. This is also reflected in its superior valuation multiple over Humana.
  • Now, looking at prospects using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both UnitedHealth and Humana will offer similar returns over the next three years.
  • The table below summarizes our revenue and return expectations for both companies over the next three years. It points to an expected return of 15% for UNH over this period vs. a 16% expected return for HUM, based on Trefis Machine Learning analysis – Humana vs. UnitedHealth. This also provides more details on how we arrive at these numbers.
  • If we compare the current valuation multiples to the historical averages, HUM fares better. UnitedHealth’s stock is currently trading at 1.1x revenues, slightly below its last five-year average of 1.4x. In comparison, Humana stock trades at 0.4x revenues, lower than its last five-year average of 0.6x.
  • Our UnitedHealth Group (UNH) Valuation Ratios Comparison and Humana (HUM) Valuation Ratios Comparison have more details.

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

Returns Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 UNH Return -7% -13% 187%
 HUM Return -11% -33% 51%
 S&P 500 Return -1% 9% 133%
 Trefis Reinforced Value Portfolio -2% 5% 644%

[1] Returns as of 4/4/2024
[2] Cumulative total returns since the end of 2016

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