Humana’s 13.2% return over the past six months has outpaced the S&P 500 by 5.3%, and its stock price has climbed to $272.25 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is HUM a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does HUM Stock Spark Debate?
With over 80% of its revenue derived from federal government contracts, Humana (NYSE: HUM) provides health insurance plans and healthcare services to approximately 17 million members, with a strong focus on Medicare Advantage plans for seniors.
Two Things to Like:
1. Long-Term Revenue Growth Shows Momentum
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Humana’s sales grew at a decent 11.9% compounded annual growth rate over the last five years. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.
2. Economies of Scale Give It Negotiating Leverage with Suppliers
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $137.3 billion in revenue over the past 12 months, Humana is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.
One Reason to be Careful:
EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Humana, its EPS declined by 5.5% annually over the last five years while its revenue grew by 11.9%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Humana has huge potential even though it has some open questions, and with its shares topping the market in recent months, the stock trades at 26× forward P/E (or $272.25 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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