Commitment To Sustainability And Science-Based Targets Will Drive Long-Term Value

Key Takeaways

• Divestment from Elderly Care and focus on high-margin areas aims to boost future revenues and net margins.
  
• Integration of acquisitions and structural consolidation is expected to enhance earnings, reduce costs, and improve net margins.
  
• Complex restructuring and challenges in growth targets, alongside declining demand in key markets, may threaten Humana's revenue stability and earnings growth.

Catalysts

Provides individual and family care services for children and adults in Sweden, Finland, Norway, and Denmark.

• The divestment of Elderly Care units allows Humana to focus on high-margin areas like child welfare and disability services, expecting to improve future revenues and net margins.
  
• Integration of Team Olivia in Norway surpassed expectations, creating new synergies, likely enhancing earnings and EBIT margins going forward.
  
• Initiatives to consolidate the company structure are anticipated to reduce operational complexity and cut costs, with expected savings of SEK 10 million by 2026, improving net margins.
  
• Strategies to enhance organic growth, such as expanding supported housing services in Sweden and developing open care disability services in Finland, are anticipated to positively impact future revenues and margins.
  
• The company's commitment to sustainability and science-based targets may enhance market perception and long-term value creation, potentially increasing future earnings and net margins.

Humana Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Humana's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 3.6% in 3 years time.
• Analysts expect earnings to reach SEK 413.0 million (and earnings per share of SEK 8.13) by about March 2028, up from SEK 144.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, down from 16.1x today. This future PE is lower than the current PE for the GB Healthcare industry at 18.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

Humana Future Earnings Per Share Growth

Risks

• The stagnation and declining customer numbers in the Personal Assistance market, along with issues related to permits and insurance reclaims, could impact revenue stability and future earnings growth.
  
• The ongoing open care services demand decline in Finland, driven by region-specific savings programs, poses a risk to revenue growth and profitability in that segment.
  
• Humana's complex company structure, encompassing approximately 180 companies that need reduction to 50, may entail significant restructuring costs and complex tax and contract adjustments, potentially affecting net margins during this transition.
  
• The focus on Finland's mental health segment and uncertain development in tendering and housing options might not yield immediate growth, posing a short-term risk to earnings and revenue.
  
• Possible difficulties in achieving organic growth targets owing to competition and slow pipeline expansion could hinder the anticipated revenue increase and overall financial growth.

Valuation

• The analysts have a consensus price target of SEK50.5 for Humana based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK11.4 billion, earnings will come to SEK413.0 million, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of SEK44.7, the analyst price target of SEK50.5 is 11.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.