Humana Inc Valuation – Initial Coverage $HUM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Humana Inc (HUM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Humana Inc. is a health and well-being company. The Company’s segments include Retail, Group, Healthcare Services and Other Businesses. The Retail segment consists of Medicare benefits, as well as individual commercial fully insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products. The Group segment consists of employer group commercial fully insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and voluntary insurance benefits, as well as administrative services only (ASO) products. The Healthcare Services segment includes services offered to its health plan members, as well as to third parties, including pharmacy solutions, provider services, home-based services and clinical programs, as well as services and capabilities to manage population health. The Other Businesses segment includes its closed-block long-term care insurance policies.

HUM Chart

HUM data by YCharts

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[otw_shortcode_button href=”” size=”medium” icon_position=”left” shape=”square”]Learn More About Premium Membership[/otw_shortcode_button]


Downloadable PDF version of this valuation:

ModernGraham Valuation of HUM – March 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $31,493,083,727 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 41.09% Pass
5. Moderate PEmg Ratio PEmg < 20 27.81 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.08 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $7.84
MG Growth Estimate 0.60%
MG Value $76.08
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $113.63
MG Value based on 0% Growth $66.61
Market Implied Growth Rate 9.65%
Current Price $217.93
% of Intrinsic Value 286.46%

Humana Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $7.53 in 2013 to an estimated $7.84 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Humana Inc revealed the company was trading above its Graham Number of $131.26. The company pays a dividend of $0.87 per share, for a yield of 0.4% Its PEmg (price over earnings per share – ModernGraham) was 27.81, which was above the industry average of 18.78.

Humana Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $131.26
PEmg 27.81
PB Ratio 3.08
Dividend Yield 0.40%
TTM Dividend $0.87
Number of Consecutive Years of Dividend Growth 0


Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $3,792,000,000
Total Assets $25,396,000,000
Intangible Assets $3,552,000,000
Total Liabilities $14,711,000,000
Shares Outstanding (Diluted Average) 150,917,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.70
Dec2016 $4.07
Dec2015 $8.44
Dec2014 $7.36
Dec2013 $7.73
Dec2012 $7.47
Dec2011 $8.46
Dec2010 $6.47
Dec2009 $6.15
Dec2008 $3.83
Dec2007 $4.91
Dec2006 $2.90
Dec2005 $1.87
Dec2004 $1.72
Dec2003 $1.38
Dec2002 $0.83
Dec2001 $0.70
Dec2000 $0.54
Dec1999 -$2.28
Dec1998 $0.77
Dec1997 $1.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.84
Dec2016 $6.61
Dec2015 $7.88
Dec2014 $7.57
Dec2013 $7.53
Dec2012 $7.12
Dec2011 $6.61
Dec2010 $5.41
Dec2009 $4.56
Dec2008 $3.53
Dec2007 $3.11
Dec2006 $2.05
Dec2005 $1.52
Dec2004 $1.24
Dec2003 $0.74
Dec2002 $0.32
Dec2001 $0.09

Recommended Reading:

Other ModernGraham posts about the company

Humana Inc Stock Valuation – February 2016 $HUM
Humana Inc. Valuation – October 2015 Update $HUM
Humana Inc. Analysis – July 2015 Update $HUM
Humana Inc. Quarterly Valuation – April 2015 $HUM
58 Companies in the Spotlight This Week – 1/31/15

Other ModernGraham posts about related companies

Chubb Ltd Valuation – March 2017 $CB
Stewart Information Services Corp Valuation – Initial Coverage $STC
Loews Corporation – February 2017 $L
Kemper Corp Valuation – Initial Coverage $KMPR
CNO Financial Group Inc Valuation – January 2017 $CNO
Anthem Inc Valuation – January 2017 $ANTM
American Financial Group Inc Valuation – January 2017 $AFG
Selective Insurance Group Valuation – Initial Coverage $SIGI
Berkshire Hathaway Inc Valuation – January 2017 $BRK.B
Infinity Property and Casualty Corp Valuation – Initial Coverage $IPCC


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.