Nordic Elderly Care And AI Tools Will Unlock Value

Key Takeaways

• Expansion in elderly and disability care, along with portfolio adjustments and digital investments, positions Humana for growth and improved operational efficiency.
  
• Cost-cutting, specialization, and share repurchases are set to boost margins, free cash flow, and long-term shareholder returns.
  
• Prolonged market weakness, regulatory uncertainty, and organizational complexity threaten profitability and margin recovery, while ongoing investments in technology may create near-term financial pressure.

Catalysts

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

• Expansion in elderly care and disability care services positions Humana to benefit from the growing aging population in Sweden and across the Nordic region, supporting long-term revenue growth as new contract wins and additional units come online.
  
• Ongoing investments in digitalization and the rollout of AI tools are likely to differentiate Humana's offerings, enhance operational efficiency, and improve customer retention, leading to higher profit margins in future periods.
  
• Cost reduction and efficiency initiatives, including SEK 100 million in dedicated savings and a new financing agreement, are expected to materially lower operating costs and net interest expenses, which should bolster net margins and future earnings.
  
• Targeted organic growth in high-demand, high-occupancy service lines-especially within Elderly Care and complex cases in Norway-combined with portfolio adjustments to match evolving demand profiles, are set to stabilize and increase occupancy rates, driving higher revenues and more consistent earnings.
  
• The successful execution of specialization and consolidation strategies, complemented by active share repurchases and improved free cash flow, creates the potential for long-term EPS growth and stronger shareholder returns.

Humana Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Humana's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.0% today to 3.0% in 3 years time.
• Analysts expect earnings to reach SEK 329.2 million (and earnings per share of SEK 6.51) by about July 2028, up from SEK 213.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.4x on those 2028 earnings, down from 8.7x today. This future PE is lower than the current PE for the GB Healthcare industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 3.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.31%, as per the Simply Wall St company report.

Humana Future Earnings Per Share Growth

Risks

• Prolonged weakness in the Finnish market, including divestment of Elderly Care and persistent soft demand in open care and child welfare services, poses a risk to organic revenue growth and group net earnings if market conditions fail to rebound as anticipated.
  
• Lower occupancy rates in the Swedish HVB (residential care) segment, tied to negative media attention and public debate, may continue depressing utilization and margins in this segment, putting ongoing pressure on the company's profitability.
  
• Heavy investments in digitalization and AI initiatives, while potentially beneficial long term, carry the risk of near-term margin compression and dilutive cash flows if technological adoption or operational efficiencies do not materialize as quickly or robustly as projected.
  
• Reliance on government-driven investigations and reforms-such as the pending comorbidity and HVB regulatory changes-creates uncertainty for the timing and effectiveness of structural growth initiatives, which could delay or reduce expected improvements in revenues and margins.
  
• Organizational complexity due to rapid portfolio shifts, business segment conversions, and active cost/headcount management (e.g., closing departments, adjusting permits) introduces execution risk-tight labor regulations and inflexible staffing requirements could impede margin recovery and constrain future earnings growth.

Valuation

• The analysts have a consensus price target of SEK45.0 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 SEK11.0 billion, earnings will come to SEK329.2 million, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 7.3%.
• Given the current share price of SEK37.2, the analyst price target of SEK45.0 is 17.3% 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.