Humana Inc (HUM): Fundamental Stock Research Analysis

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Before analyzing a company for investment, it’s important to have a perspective on how well the business has performed.  Because at the end of the day, if you are an investor, you are buying the business.  The FAST Graphs™ presented with this article will focus first on the business behind the stock.  The orange line on the graph plots earnings per share since 2001.  A quick glance vividly reveals the historical operating record of the company.

Humana Inc (NYSE:HUM) is a leading health care company that offers a wide range of insurance products and health and wellness services that incorporate an integrated approach to lifelong well-being.

This article will reveal the business prospects of Humana Inc (NYSE:HUM) through the lens of FAST Graphs – fundamentals analyzer software tool.   Therefore, it is offered as the first step before a more comprehensive research effort.  Our objective is to provide companies that have excellent historical records and appear reasonably priced based on past, present and future data and expectations.

Humana Inc (NYSE:HUM)A quick glance at the graph itself and the orange earnings justified valuation line will tell the readers volumes about how well the company has historically been managed and performed as an operating business.  Simply put, the reader should ask whether this example is worthy of a greater investment of their time and effort based on the data as presented and organized.  The FAST Graphs’ unique advantage is the graphical articulation of the price value proposition.

Earnings Determine Market Price:  The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings.  The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line.  On graph after graph the lines will move in tandem.  If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.   

Earnings & Price Correlated Fundamentals-at-a-Glance

A quick glance at the historical earnings and price correlated FAST Graphs™ on Humana Inc (NYSE:HUM) shows a picture of undervaluation based upon the historical earnings growth rate of 23.9% and a current P/E of 10.9.  Analysts are forecasting the earnings growth to continue at about 10%, and when you look at the forecasting graph below, the stock appears  undervalued (it’s outside of the value corridor of the five orange lines – based on future growth).

Humana Inc (NYSE:HUM):  Historical Earnings, Price, Dividends and Normal P/E Since 2001

Performance Table Humana Inc

The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return:  capital appreciation and dividend income.  Dividends are included in the total return calculation and are assumed paid, but not reinvested.

When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident.  In addition to the 15.2% Annualized ROR (w/o Div) (green circle), long-term shareholders of Humana Inc (NYSE:HUM), assuming an initial investment of $10,000, would have received an additional $1,514.77 in total dividends paid (blue highlighting) that increased their Annualized ROR (w/o Div) from 15.2% to a Total Annualized ROR plus Dividends Paid of 15.5% versus 2.9% in the S&P 500.

The following graph plots the historical P/E ratio (the dark blue line) in conjunction with 10-year Treasury note interest.   Notice that the current price earnings ratio on this quality company is as low as it has been since 2001.

A further indication of valuation can be seen by examining a company’s current P/S ratio relative to its historical P/S ratio.  The current P/S ratio for Humana Inc (NYSE:HUM) is .36 which is historically normal.

Looking to the Future

Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:

1.            The rate of change (growth rate) of the company’s earnings

2.            The price or valuation you pay to buy those earnings

Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound and profitable performance.

The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.

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