Last Update 15 Nov 25
Fair value Decreased 2.34%HUM: Confidence Will Increase As Medicare Advantage Star Ratings Recover
Humana's analyst price target has been revised lower by approximately $7 to $288.46. Analysts cite a more cautious outlook on margins and an uneven recovery in Medicare Advantage profitability.
Analyst Commentary
Recent research notes reflect a divided view among analysts regarding Humana's near-term prospects and valuation, as opinions vary on the company’s margin recovery, strategy in Medicare Advantage, and growth outlook.
Bullish Takeaways- Bullish analysts have raised price targets based on improved earnings visibility and positive developments in Medicare Advantage Star ratings, highlighting greater confidence in Humana's long-term growth trajectory.
- Several research notes emphasize encouraging signs such as strong internal patient experience surveys, high member efficacy, and improved net promoter scores, all of which contribute to better-than-expected positioning in a challenging environment.
- Humana’s legal success in challenging the Medicare Advantage RADV rule has helped to alleviate concerns around potential financial impacts from increased audits, reducing near-term regulatory risk.
- Analysts see recent share price pullbacks as attractive entry points, citing potential catalysts like sector rotation into healthcare and implied valuations below the industry average.
- Bearish analysts have lowered price targets due to concerns about uneven margin recovery and a prolonged downturn in the managed care sector's underwriting environment, with skepticism about Humana’s ability to rebound quickly.
- Some research highlights that Medicare Advantage recovery may not be uniform across the sector. Humana could face a longer path toward regaining higher Star ratings for key contracts, impacting future payment years.
- Risks have been raised about possible adverse selection and concentration in specific plan types as Humana seeks to diversify its offerings. Potential growth may come from areas exited by competitors, which could challenge profitability.
- There is further caution regarding ongoing regulatory uncertainty and whether recent favorable court outcomes will translate into lasting changes for Humana’s operating environment and future margins.
What's in the News
- Many Affordable Care Act (ACA) plan enrollees, including those covered by Humana, are facing average premium increases of 26% for 2026 as new rates are released. (WSJ)
- Humana lost a second lawsuit challenging federal cuts to Medicare bonus payments, placing billions in potential revenue at risk after a Texas court ruling upheld the downgrade of quality ratings tied to these payments. (Bloomberg)
- Negotiations over enhanced subsidies for ACA plans have become central to government shutdown talks. These discussions affect over 24 million Americans enrolled in the plans, including a significant number of Humana customers. (WSJ)
- The American Physical Therapy Association joined federal antitrust litigation alleging a conspiracy among large insurers, including Humana, to systematically underpay out-of-network healthcare providers for services. (Key Developments)
Valuation Changes
- The consensus analyst price target has decreased moderately from $295.38 to $288.46.
- The discount rate has risen slightly, moving from 6.78% to 6.96%.
- Revenue growth projections have increased from 7.40% to 9.08%.
- The net profit margin is virtually unchanged, with a minor decrease from 2.17% to 2.17%.
- The future P/E has fallen from 12.94x to 11.82x, reflecting an adjustment in market expectations.
Key Takeaways
- 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.
- 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.
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