Company Profile (excerpt from Reuters): Humana Inc. (Humana), incorporated on July 27, 1964, is a health and well-being company. The Company’s segments include Retail, Group and Specialty, Healthcare Services and Individual Commercial. The Retail segment consists of Medicare benefits, as well as individual commercial fully insured medical benefits, including dental, vision, and other supplemental health products. The Group and Specialty segment consists 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 Individual Commercial segment includes Individual Commercial products marketed under the HumanaOne brand.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass all 6 of the following tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$36,974,919,627||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||106.34%||Pass|
|5. Moderate PEmg Ratio||PEmg < 20||20.25||Fail|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||3.69||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
|MG Growth Estimate||10.62%|
|MG Value based on 3% Growth||$195.17|
|MG Value based on 0% Growth||$114.41|
|Market Implied Growth Rate||5.88%|
|% of Intrinsic Value||68.12%|
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 Undervalued after growing its EPSmg (normalized earnings) from $7.88 in 2015 to an estimated $13.46 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.88% 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 above the price.
At the time of valuation, further research into Humana Inc revealed the company was trading above its Graham Number of $170.56. The company pays a dividend of $2 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 20.25, which was below the industry average of 26.11, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Humana Inc performs fairly well in the ModernGraham grading system, scoring a B-.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||2|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2018|
|Long-Term Debt & Capital Lease Obligation||$4,375,000,000|
|Shares Outstanding (Diluted Average)||137,527,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$17.25|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$13.46|
Other ModernGraham posts about the company
|Humana Inc Valuation – June 2018 $HUM|
|Humana Inc Valuation – Initial Coverage $HUM|
|Humana Inc Valuation – August 2016 $HUM|
|Humana Inc Stock Valuation – February 2016 $HUM|
|Humana Inc. Valuation – October 2015 Update $HUM|
Other ModernGraham posts about related companies
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.