We came across a long thesis on Humana Inc (NYSE:HUM) on ValueInvestorsClub by ElCid. In this article we will summarize the bulls’ thesis on HUM. The company’s shares were trading at $260.73 when this thesis was published, vs. closing price of $287.36 on Jan 13th.
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Humana Inc (NYSE:HUM) is one of the largest private health insurers in the US with a focus on administering Medicare Advantage plans. With more than 6 million plan members, the firm has built a niche specializing in government-sponsored programs, with nearly all its medical membership stemming from individual and group Medicare Advantage, Medicaid, and the military’s Tricare program.
The bull thesis revolves around the idea that Humana Inc (NYSE:HUM) is currently priced at an undervalued ~13x P/E, much below the historical range of high teens to low 20s, which is on top of significantly cut down EPS estimates – the 45% decline in earnings expectations was driven by street now expecting only break-even margins in the core Medicare Advantage (MA) segment. The author argues that the margin pressure is a one-time headwind driven by several temporary factors. First, the government awarded only 0% pricing benefit to HUM in 2025, to balance some of the generous awards in the past – this element should return to growth in the subsequent years to support the company which is a key player in government-sponsored insurance plans. Second, the entire industry experiences demographic headwinds from seniors returning to healthcare post-COVID, as well as changes to risk coding intensity (V28), which represents a short-term profitability headwind for all insurers. The author claims that since all insurers experience the same headwinds, the entire industry will need to eventually price them through. Also, the fact that HUM consistently operated at 3-5% in the past proves that the company will be able to return to this profitability level once the abovementioned headwinds are navigated.
Although not central to the thesis, the author notes that Humana Inc (NYSE:HUM) could potentially become an acquisition target for Cigna, which would likely involve a significant premium over the current market price. While no specific price target is provided for HUM, the author highlights the current undervaluation as an excellent opportunity to purchase the stock at a bargain.
While we acknowledge the potential of HUM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than HUM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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