Humana analysis: a solid company that customers love. Will investors love it too?

A fast growing company with a great product that outperforms the market and appears to be reasonably priced. Can there be any downside to that? Let's take a look at it together.

Humana is in the business of health care targeting specific groups

Basic overview

Humana Inc. is an American healthcare company headquartered in Kentucky, USA. It focuses on providing health insurance and healthcare services to individuals, employers, and government organizations. Humana is one of the largest healthcare companies in the US and is also one of the largest companies in the world. The company also focuses on providing services for seniors, including Medicare Advantage and Medicare Prescription Drug Plan programs.

https://www.youtube.com/watch?v=nPjrso-XNQ8

Humana has more than 46,000 employees and provides healthcare for more than 20 million people worldwide. The company is also active in corporate responsibility and supports many charitable projects and programs.

Humana faces competition from other healthcare companies such as UnitedHealth Group, Anthem Inc. and Aetna Inc. However, because of its size and breadth of healthcare services and technology offerings, Humana has a strong market position and is able to respond to changes in the healthcare industry and customer needs.

Sector

The sector in which Humana operates is healthcare and health insurance. This has great potential for growth and development in the U.S., as healthcare is understandably very important to many U.S. residents and overall consumption of healthcare services in the country continues to grow.

There are several trends affecting the health care and health insurance sector in the US. These include an aging population, an increase in chronic diseases, rising healthcare costs , and efforts to improve the quality and accessibility of healthcare services.

The health sector is very diverse and includes many areas such as primary care, specialised care, pharmaceutical services, health insurance and many more. Humana Inc. focuses on providing health insurance and healthcare services to individuals, employers, and government organizations, and has a strong market position due to its size and range of healthcare services and technology offerings.

Overall, the healthcare sector is an area with high growth potential, but also with high levels of regulation and risk. Companies like Humana Inc. are trying to respond to these challenges by innovating and leveraging technology to maintain their market position and provide quality healthcare to their customers. If it succeeds, it has won.

Judge for yourself. The US healthcare sector is truly gigantic. Source

Competition

  • UnitedHealth Group Inc $UNH+1.5% provides healthcare for the elderly and other vulnerable groups in the US and is the largest healthcare company in the US.
  • Anthem Inc $ELV+1.4%
  • Oak Street Health $OSH+0.1% - Oak Street Health provides healthcare for seniors and other vulnerable groups in the US and focuses on providing care in low-income communities.

These companies also have large market shares and face similar challenges and opportunities as Humana.

Risks

The healthcare industry is heavily regulated and changes in rules and regulations could have a significant impact on the operations and performance of Humana Inc. For example, changes in Medicare and Medicaid regulations may affect payments for healthcare services provided by the Company. Humana Inc. must also address the costs of providing health care and health insurance, which may be high. If costs increase more than expected, the Company's performance and profitability may be affected. Similar to $CANO-2.1%, which I also analyzed, Humana faces staffing risks. Humana Inc. depends on skilled healthcare workers to provide healthcare services. If the shortage of skilled workers worsens, it could affect the quality of health care provided and the company's performance.

Current Situation

Investors need not worry. Despite weaker growth, Humana expects to be able to beat its previous earnings targets. The company also recently announced that it will exit the employer-based insurance business, freeing up cash to focus on its more profitable operations.

Humana, unlike some other insurers, focuses on older Americans. More than 84% of its revenue comes from premiums, while the remaining 16% comes from its newer CenterWell business, which provides home care, pharmacy services and primary care to seniors.

https://www.youtube.com/watch?v=cqJb1u1UtH8

But it's in Medicare Advantage where Humana really excels, with that business generating nearly $73 billion in revenue in 2022, accounting for 80% of Humana's insurance revenue. The company is the second largest player in this area.

Of course, Humana offers more than just Medicare Advantage. The company is expanding its CenterWell business, which delivers higher margins. CenterWell is small but growing fast. Revenues for this unit were $4.1 billion in the fourth quarter with an operating margin of 6.4%. As this division grows as a share of total volume, Humana's operating margin should grow to 5.2% by 2026. This would result in approximately 14% annual earnings per share growth through 2026.

Source

Humana's stock is looking decent. They trade at 17x expected 2023 earnings, a good multiple for a stock that's growing roughly twice as fast as the S&P 500. It's also cheaper than UnitedHealth, which trades at 19.2 times expected earnings in 2023. Again, not something I'd look for in my portfolio, but I like it significantly more than competitor $CANO-2.1%

How about you? Are you interested in this company?

Disclaimer: This is in no way an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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