Aging Population And Tech Will Shape Long-Term Medicare Care

Key Takeaways

• Growth in Medicare Advantage and CenterWell platforms, driven by demographic trends and care initiatives, positions Humana for sustained revenue and earnings improvement.
  
• Investments in advanced technology and value-based care enhance operational efficiency, margin expansion, and more stable, predictable profitability over time.
  
• Heavy reliance on Medicare Advantage, evolving CMS criteria, rising medical costs, vertical integration risks, and intense competition threaten Humana’s margins, revenue growth, and market position.

Catalysts

Provides medical and specialty insurance products in the United States.

• Demographic shifts from the aging U.S. population and Baby Boomer retirements are increasing the Medicare-eligible population, supporting sustained high demand for Humana’s Medicare Advantage plans and driving long-term revenue growth.
  
• Humana’s integration of advanced technology—including AI in contact centers, telehealth, and data analytics—promises to deliver greater operating efficiencies, reducing administrative expenses and supporting higher net margins over the coming years.
  
• The company’s continued strategic investments in value-based care, including clinical initiatives to improve Star ratings and close care gaps, are expected to result in lower medical loss ratios and stronger margin expansion as clinical performance becomes a bigger driver of reimbursement.
  
• Ongoing expansion and maturation of the CenterWell platform (primary care, home health, and pharmacy) is expected to boost per-member-per-month payments and operating leverage as new clinics move through the J-curve, supporting both revenue and long-term earnings growth.
  
• Humana’s execution in shifting its membership toward higher lifetime value segments, alongside growing Medicaid presence and scale advantages from consolidation, is likely to lead to more predictable earnings and improved profitability as these trends compound over multiple years.

Humana Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Humana compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Humana's revenue will grow by 9.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.4% today to 2.0% in 3 years time.
• The bullish analysts expect earnings to reach $3.1 billion (and earnings per share of $25.52) by about July 2028, up from $1.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.5x on those 2028 earnings, up from 16.3x today. This future PE is lower than the current PE for the US Healthcare industry at 21.0x.
• Analysts expect the number of shares outstanding to grow by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Humana Future Earnings Per Share Growth

Risks

• Humana’s significant exposure to Medicare Advantage introduces long-term risk if government reimbursement rates are reduced or regulatory changes occur, which could impair revenue growth and profitability.
  
• The outcome and evolving criteria of the CMS Stars ratings, including ongoing litigation and uncertainty over cut points, pose risk to Humana’s ability to achieve targeted margins, potentially leading to margin compression and lower net earnings.
  
• Challenges in medical cost management, as highlighted by mid-single-digit growth trends and higher-than-expected utilization in areas like oncology, create persistent pressure on net margins and put Humana at risk if future trends outpace their projections.
  
• Execution risk from continued investment in vertical integration—such as CenterWell primary care and pharmacy expansion—means any missteps or underperformance could lead to elevated costs, increased capital intensity, and muted returns on invested capital, negatively impacting long-term earnings.
  
• Heightened competition from other insurers, disruptors, and value-based care models, coupled with regulatory pushes for price transparency, may erode Humana’s pricing power, threaten market share, and constrain revenue and profit expansion over time.

Valuation

• The assumed bullish price target for Humana is $348.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Humana's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $348.0, and the most bearish reporting a price target of just $224.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $157.2 billion, earnings will come to $3.1 billion, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 6.4%.
• Given the current share price of $231.12, the bullish analyst price target of $348.0 is 33.6% 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.