Is Humana Still Attractive After Recent Share Price Volatility and Regulatory Headlines?

• Curious if Humana stock is a bargain or overhyped? Let’s dig into what’s really driving its value, beyond the surface numbers.
• The share price has moved noticeably, rising 11.6% year-to-date and nearly 10% over the past year. However, short-term dips like last week's drop of 4.4% show sentiment can still swing fast.
• Recent headlines about regulatory updates in managed care and changes in Medicare reimbursement rates have brought fresh volatility to the sector. Industry analysts are also weighing in on how upcoming policy decisions could impact growth prospects for companies like Humana.
• According to Simply Wall St’s valuation framework, Humana scores a 4 out of 6 on key undervaluation factors, making its valuation worth a closer look. We’ll go through the standard approaches next, but stick around as the most insightful way to think about value might surprise you at the end.

Humana delivered 9.7% returns over the last year. See how this stacks up to the rest of the Healthcare industry.

Approach 1: Humana Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and then discounting those amounts back to their present value. This method aims to answer what Humana is truly worth today, based on its future potential to generate cash.

According to Humana’s latest financials, the company reported Free Cash Flow (FCF) of approximately $2.07 Billion in the most recent twelve months. Analysts forecast FCF growth, projecting it to rise steadily with estimates reaching $3.74 Billion in 2029. After the first five years, these projections are typically extrapolated further by using reasonable growth assumptions.

Applying the DCF model, Simply Wall St estimates Humana’s fair value at $667.31 per share in USD. Notably, this valuation represents a 57.8% discount compared to the current share price, which suggests the market may be underappreciating Humana’s long-term cash-generating abilities.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Humana is undervalued by 57.8%. Track this in your watchlist or portfolio, or discover 840 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Humana.

Approach 2: Humana Price vs Earnings (PE Ratio)

The Price-to-Earnings (PE) ratio is widely regarded as one of the most relevant valuation tools for established, profitable businesses like Humana. This metric gives investors a quick way to see how much they are paying for each dollar of current earnings, making it especially useful for companies with consistent profit streams.

A company’s "normal" or "fair" PE ratio is influenced by growth expectations and perceived business risk. Faster growth or lower risk generally justifies higher multiples, while slower growth or higher risk often pulls ratios lower. Humana is currently trading at a PE ratio of 21.5x, which is right in line with the Healthcare industry average of 21.5x and just shy of its major peer group’s 23.7x.

Instead of only comparing Humana’s PE to industry or peer averages, Simply Wall St’s “Fair Ratio” provides a more tailored benchmark. This proprietary metric calculates a reasonable PE ratio for Humana by accounting for not just earnings, but also company-specific factors like forecast growth, profit margins, risk profile, and market capitalization. In this way, the Fair Ratio offers a valuation perspective that reflects both what makes Humana unique and how it compares in context.

According to Simply Wall St, Humana’s Fair Ratio is 38.3x, which is substantially higher than its current PE. This suggests that, given its growth potential and risk profile, the market may be undervaluing the business based on earnings alone.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1411 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Humana Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story, or perspective, about a company like Humana. It connects your beliefs about its business, future performance, and fair value, all grounded in your own assumptions about revenue growth, profit margins, and risk.

Unlike traditional valuation methods that rely only on historical numbers, Narratives allow you to shape a forward-looking thesis and see how your view affects Humana's valuation alongside the views of millions of other investors in the Simply Wall St Community. The Narrative tool helps you track how current price and fair value compare, informing buy or sell decisions based on your unique outlook.

Narratives update dynamically as new information emerges, such as earnings releases or regulatory changes, making your analysis more responsive in a fast-moving market. For example, some investors may see upside for Humana if they believe enhanced AI initiatives and expanding primary care will boost margins, leading to a valuation near $353. Others might be cautious, focusing on regulatory risks and assign a much lower fair value around $250. Ultimately, with Narratives, you select the assumptions that matter most to you, connect numbers to business realities, and make investment calls with greater conviction.

Do you think there's more to the story for Humana? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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