Company Information

Humana is a for profit American Health Care company based in Kentucky. Humana offers PPo and PFFS insurance plans for Medicare and Medicare advantage holders. The company primarily offers pharmaceutical plans for its members. The company has over 46,000 employees at the end of 2020, with annual revenue totalling 77.16 billion.

Executive Summary

Investment Thesis: Humana has a history of delivering consistent investor returns, innovative insurance policies, and a proven ability to return profits despite market uncertainty. Humana is well positioned to take advantage of changing demographics, the expansion of medicaid, and the continued importance of private insurance and public insurance alternatives to provide consistent returns to investors. Through the distribution of its own pharmaceutical products to lower costs, to a constantly expanding market and range of offered products, Humana will continue to bring profits, while continuing to lower costs across the board. As margins remain consistent, while membership expands, revenues and profits will increase.

Investment Merits: 

High EPS Growth - Earnings per share has grown an average 35% compounded each of the last three years. Sustained growth in the industry promises per share returns.

EBIT Growth - One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Humana's revenue from operations was lower than its revenue for the last twelve months. EBIT margins are up from 5.3% to 7.7%, and revenue is growing.

Increased Investment in Medicare - 80% of Humana’s revenue comes from the Medicare advantage plan. Between 2019-2020 Medicare advantage plans grew 16.4%, or 333,300 members, to 2.36 million people in the past year, lifting Humana's revenue from Medicare plans to $8.8 billion in the second quarter from $7.5 billion a year ago.

Investment Risks: 

Slow repeal of (PPACA) - the Patient Protection & Affordable Care Act health insurance mandate is projected to decrease between now and 2025, which required individuals to purchase health insurance. This is offset by increased purchases of private insurance and Medicare.

Rising Debt Percentage - Humana has seen a 21.2% deficit  increase between 2019, and the first quarter of 2021 from increased hospital visits and Covid vaccination appointments. This is expected to rise another 5% by the end of the year. However, it also has US$20.0b in cash, leading to a US$12.4b positive net cash position.

Government Regulation - The potential for government regulation, which would affect a large percentage of Humana policies, presents a risk for future stable growth.