It’s no easy feat trying to track down a company that has been so consistent in growing its top line that each and every single quarterly report is accompanied by a declaration of year-over-year growth but that’s precisely the case with Humana over the past half decade.
If you were attempting to identify a perfect stock, one feature it might have beyond steadily growing revenues through boom and bust cycles is a growing market size. For Humana, which targets an aging population, the increasing number of so-called boomers has indeed been a boon for business.
But is this healthcare stock a buy now or has all the good news been priced in?
- Humana has consistently reported year-over-year growth in quarterly revenues for the past five years.
- Benefiting from an aging population and strategic partnerships with firms like Fitbit and Walgreens, it has established a wide moat.
- Analysts’ bullish projections and stock buyback programs indicate Humana has good upside potential.
One reason Humana has been on a tear both in terms of top line growth and earnings per share, which have all but doubled in the past half decade, is its ever-growing list of partnerships that range from gadget firms like Fitbit to help with preventive care to Walgreens in order to provide clinics aimed at an older demographic.
What matters most though is how those partnerships have impacted financials and, on that front, Humana management has been stellar in posting ever improving top line and bottom line figures, as well as growing its balance sheet admirably.
The company’s liquid reserves now sit at $15.1 billion in cash, up from $2.3 billion back in 2018. And while cash is up about 7x, long-term debt has grown by just 2x. It’s the kind of ratio that intrigues value investors, and rightly so.
Is Humana Stock a Buy?
With the stock trading just above $500 per share, analysts have a consensus price target of $580 per share on Humana. So too does a 5-year discounted cash flow forecast align with the bullish thesis, and puts fair value just north of $600 per share.
Even insiders at Humana appear to be very bullish on the prospects for the firm having kicked off an share repurchase scheme that should increase earnings per share figures over the coming years.
Given the healthcare company has clearly built an economic moat that has translated into a sustainable competitive advantage – look no further than its return on invested capital that sits at 13.6% for evidence of that – it’s easy to see why Wall Street has a lofty price target on the firm.
With that said, analysts have guided down for the upcoming quarter suggesting perhaps a plateau in good news lies on the horizon. In the interim, the company does pay a modest dividend, albeit under 1% annually.
Will Humana Shares Pop?
For a company with a PE ratio just north of 20, Humana has the hallmarks of being a value play and one that will stand the test of time. Given its underwhelming performance relative to the major market indices this year, there is a good chance that Humana share price, given its upside potential, fairs better than the market next year, especially if the indices struggle to maintain traction.