Last Update 14 Dec 25

Fair value Increased 0.64%

HUM: Legal Appeals And Star Ratings Will Shape Balanced Outlook Ahead

Analysts have modestly increased Humana's fair value estimate by about $2 to roughly $288, reflecting slightly stronger projected revenue growth and improved earnings visibility, even as they incorporate more conservative sector margin assumptions and ongoing concerns about Medicare Advantage and Medicaid cyclicality.

Analyst Commentary

Recent Street research paints a mixed picture for Humana, with modest upside to fair value supported by improving earnings visibility, but tempered by meaningful concerns around Medicare Advantage dynamics, contract diversification efforts, and broader managed care cyclicality.

Bullish Takeaways

Bullish analysts highlight improved earnings visibility tied to Medicare Advantage star ratings, arguing that stable to slightly better quality metrics support higher long term earnings power and justify modest price target increases.
Some see Humana's strategy to diversify contracts, including growth in higher rated plans and selective PPO expansion, as positioning the company for more resilient growth and reduced concentration risk over time.
The reaffirmation of forward earnings guidance and in line preliminary 2026 star ratings are viewed as signs that execution is tracking expectations, which underpins confidence in the medium term growth algorithm.
Regulatory developments around risk adjustment audits are seen by some as easing near term overhangs on valuation, reducing the perceived downside from adverse policy outcomes.

Bearish Takeaways

Bearish analysts argue that the managed care sector is entering its most significant underwriting downturn in over a decade, which could cap margin recovery and constrain multiple expansion for Humana.
Several research notes have cut price targets, reflecting more conservative margin assumptions and concern that contract diversification and PPO expansion could invite adverse selection and pressure profitability.
There is skepticism that Medicare Advantage margin recovery will be evenly distributed, with some expecting Humana to face a longer and more volatile path to normalization, especially given uncertainty around key contracts and star recapture.
Analysts also flag a slower cyclical recovery in Medicaid and the healthcare exchanges, warning that these segments may drag on overall growth and limit the upside to current valuation, even if Medicare Advantage trends stabilize.

What's in the News

Humana has filed a notice of appeal to the Fifth Circuit after a Texas district court upheld Medicare's downgrade of its star quality ratings, a decision that reduced bonus payments tied to Medicare Advantage plans (Bloomberg).
The company recently lost a separate lawsuit seeking to reverse Medicare bonus cuts, potentially putting billions of dollars in revenue at risk as courts continue to side with federal regulators on quality ratings methodology (Bloomberg).
Humana lowered its 2025 GAAP EPS guidance to approximately $12.26 from about $13.77, reflecting a more cautious outlook amid sector wide reimbursement and margin pressures (company guidance).
Broader policy debates over extending enhanced Affordable Care Act subsidies are intensifying in Washington. Outcomes are likely to affect enrollment and pricing dynamics for major managed care players, including Humana (Wall Street Journal, Politico, MS Now).
Humana and Providence launched a data sharing initiative using FHIR standards and modern APIs to improve interoperability and value based care for Medicare Advantage members. The initiative positions the company ahead of upcoming federal interoperability rules (company announcement).

Valuation Changes

The fair value estimate has risen slightly to approximately $288, up from about $287, reflecting modestly stronger growth assumptions.
The discount rate is effectively unchanged, edging down marginally to about 6.96% from roughly 6.96%, implying a stable risk profile in the model.
Revenue growth has increased slightly, with long term annual growth assumptions moving to around 9.5% from about 9.1%, indicating a somewhat more optimistic topline outlook.
The net profit margin has fallen slightly, declining to roughly 2.15% from about 2.16%, as modeling reflects marginally more conservative sector margin expectations.
The future P/E has risen slightly to about 11.8x from roughly 11.7x, suggesting a modestly higher valuation multiple on projected earnings.

Enhanced AI use improves customer interactions and operational efficiency, potentially benefiting net margins and reducing costs.
Strategic acquisitions and focus on clinical excellence boost growth in primary care, improve quality outcomes, and support revenue increase.
Uncertainty around regulatory impacts and operational efficiency challenges could pressure Humana's margins and growth, necessitating strategic alignment to mitigate risks.

Catalysts

About Humana

Provides medical and specialty insurance products in the United States.What are the underlying business or industry changes driving this perspective?

Humana is focusing on operational efficiency by increasing the use of AI in its contact centers to enhance customer interactions and reduce costs, likely impacting net margins.
The company is making substantial efforts to improve clinical excellence, including medication adherence campaigns and member engagement through in-home visits combined with virtual health, which is expected to enhance medical margins and member experience.
Growth in value-based models, particularly through the expansion of CenterWell and Medicaid services, is contributing to robust year-over-year patient and membership growth, indicating a potential increase in revenue.
Humana’s strategic capital allocation, including the acquisition of 30 new centers, is expected to fuel growth in primary care, impacting revenue and operational scalability.
The progress in closing gaps in care and achieving high Stars ratings is targeted to deliver sustainable clinical outcomes and boost quality, contributing positively to future earnings and competitive stability.

Humana Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Humana's revenue will grow by 7.0% annually over the next 3 years.
Analysts assume that profit margins will increase from 1.3% today to 2.2% in 3 years time.
Analysts expect earnings to reach $3.3 billion (and earnings per share of $26.27) by about September 2028, up from $1.6 billion today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.2x on those 2028 earnings, down from 20.8x 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 decline by 0.12% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Humana Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Humana's performance is influenced by the Medicare Advantage (MA) Stars program, and uncertainties around litigation related to CMS' 2026 Star ratings could affect profitability and growth projections, impacting earnings.
Timing-related outperformance and administrative cost expectations shifting to later quarters could potentially affect operational efficiency and net margins if not managed accurately.
The impact of MACRA's V28 coding changes and its disproportionate effect on higher-acuity patients could pressure the company's medical cost ratio and affect overall margin if not successfully mitigated.
Ongoing integration and earnings realization in the Medicaid and CenterWell business segments are essential, and any delays or inefficiencies in these objectives could impact revenue growth and net earnings.
External factors such as changes in reimbursement rates, regulatory pressure, or shifts in consumer behavior influenced by the Inflation Reduction Act (IRA) may present risks to revenue streams and profitability if not well aligned with the company's operational and strategic plans.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $298.955 for Humana based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $353.0, and the most bearish reporting a price target of just $250.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $150.9 billion, earnings will come to $3.3 billion, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 6.8%.
Given the current share price of $273.02, the analyst price target of $298.95 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

HUM: Medicare Advantage Stars And ACA Premiums Will Shape Balanced Near-Term Outlook