Humana is a top company in the health insurance industry, where it offers solutions like Medicare, Medicaid, families, individuals, and other areas.
The company has grown its business to have over 17 million members in its medical benefit plans and 5 million users in its specialty products. Most of its business comes from the federal government, including Medicare Advantage contracts.
Humana operates its business in two segments like insurance and CenterWell. The insurance business is made up of its retail group and specialty businesses, while CenterWell includes primary care and home solutions.
Humana’s business has been doing well over the years. Its annual revenue has grown from over $62.9 billion in 2019 to over $101.27 billion in 2023. However, its profits have remained in a tight range as the cost of doing business has risen.
Its weak performance has pushed its stock substantially downwards in the past few years. It has dropped by 52% from its highest level in 2023 and by 42% this year.
Its stock was trading at $266, while its HypeIndex has risen to 143%.
Positive hype
Humana’s hype has risen after the company published mixed financial results. Its quarterly revenue rose to $29.39 billion, up from $26.4 billion in the same period in 2023.
The company’s nine-month revenue rose from $79.9 billion to $88.54 billion as the number of customers continued rising. However, its earnings per share dropped from $6.21 to $3.91.
However, the company’s benefits expense ratio rose to 90.5% from 87.6% as the cost of healthcare continued rising.
Humana also raised its forward guidance even as the business continued facing major headwinds.
Analysts are upbeat about Humana, with the average revenue estimate for the fourth quarter being $28.73 billion, 11.6% increase from the same period in 2023. If this is accurate, its annual revenue will be $116 billion.
12 of the analysts following the company have a bullish rating of the stock, while 7 have a neutral view.
The average Humana stock target is $288, higher than the current $266.
Humana could benefit as the election nears since it will remove the ongoing jitters on who will become president.
Negative hype
Humana operates in a business that is sensitive to US government spending. As such, it could be affected as the US government debt nears the $36 trillion level.
The company operates in a low-margin business, where most of the funds it collects goes to care costs. As a result, it has a gross profit margin of 14.7% and a net income margin being 1.18%.
Humana’s insurance benefits to expense ratio has continued rising and has moved to 90%.
The same is happening in the Centerwell segment, where the operating cost ratio has risen to 91.3%.
Analysts expect that the Medicare Advantage business will remain under pressure, experiencing federal and state regulatory headwinds, that will affect its margins going forward.
The company will also continue to face more pressure as the American population continues to age.
It operates in one of the most highly competitive industries, with the top players being UnitedHealth Group, Elevance Health, Cigna, Centene, and Aetna.
Humana stock analysis
The weekly chart shows that the Humana share price peaked at $560 in 2022, and has dropped to $266 as challenges have continued.
It formed a death cross pattern as the 50-week and 200-week Exponential Moving Averages (EMA) have crossed each other.
It has also dropped below the key support at $297, its lowest point in April 2024. Therefore, the stock will resume the downward trend, as sellers target the key support at $213. Before that, the stock could retest the key resistance point at $297 and then resume the downtrend.
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