Investing№ 138NYSE: HUM
Humana
Humana is the Medicare Advantage insurer that grew individual members 23% in six months while guiding 2026 earnings to a floor of $9.00 a share from $17.14; the price, 46 times that floor, sits 3% above my base value.
Updated Fiscal year ends 31 December43 min readPedrum Shokouhi
Thin moat
Research, not investment advice. Figures as of .
Key numbers
- Revenue$129.7B (reported)2025, up 10.1%; guide for 2026 is at least $160B [2][3]
- Adjusted EPS$17.14 (reported)2025; 2026 guide is “at least $9.00” [4][5]
- Owner cash, 2028 base$25 (estimate)Per share, my estimate, after transformation charges and capital kept for growth
- Individual Medicare Advantage members6.45M (reported)30 June 2026, up 1.2M in six months [6]
- Members in 4-star plans, 202795% (reported)Humana’s figure for the 2027 ratings, which pay from 2028 [7]
- Debt to total capital42.7% (reported)30 June 2026; target about 40% [3]
(reported)Reported in a filing (calculated)Calculated from reported figures (estimate)My estimate
The answer
- Humana is a Medicare Advantage insurer with $129.7B of 2025 revenue, 83% of it from the federal government, and a primary-care, pharmacy and home-health arm called CenterWell; it earned an adjusted $17.14 a share in 2025, guides to “at least $9.00” for 2026, and has 6.45M individual Medicare Advantage members, up 1.2M in six months.246
- I value it at $405 a share, in a range of $137 to $635, because the 2027 Star Ratings put 95% of its Medicare Advantage members in plans rated four stars or more, which pays from 2028, but my base has the margin on those members reaching only 2.0% in 2028 against the “at least 3%” the company commits to (estimate).789
- At $417.42 the price is 3% above my base value and 205% above my bear value, it is 46 times the 2026 floor and 13 times my 2028 base, my base case returns 9.3% a year against the 9.5% I require, and my margin-of-safety price is $263 (estimate).1
Six questions, one line each
- Why
- The government pays Humana a fixed monthly amount to cover each senior who picks one of its private plans, and Humana keeps whatever is left after medical bills, so 70% of its premiums depend on one program, one payer and one set of rules (calculated).2 →
- The moat
- 6.45M Medicare Advantage members, 622,000 primary-care patients and a mail-order pharmacy, set against a rate the government fixes and a quality score that fell to 20% of members at four stars for 2026 and came back to 95% for 2027.6107 →
- The advantage
- It is the most concentrated of the large insurers, 2.1% operating margin in 2025 against 4.2% at UnitedHealth, and the one with the most to gain if Medicare Advantage margins recover (calculated).211 →
- Management
- Jim Rechtin, CEO since July 2024, bought 6,530 shares at $229.25 in May 2025, owns 44,251, and got $18.8M of reported 2025 pay; the board cut his bonus from 169% to 112% of plan.1213 →
The business
Humana is a health insurer in Louisville, Kentucky, with about 67,060 employees. At the end of 2025 it covered about 15 million people in medical plans, 4.6 million of them military families whose care it only administers, and by 30 June 2026 the total had risen to 17.9 million.26 Its business has two parts. The Insurance segment sells Medicare Advantage, Medicare drug plans, Medicaid and a few smaller products. The CenterWell segment runs primary-care clinics for seniors, a mail-order and specialty pharmacy, and home health, and sells most of its services to the insurer.2
The way I think about it: the federal government pays Humana a fixed amount each month for every senior who joins one of its Medicare Advantage plans. The amount is set by CMS, the agency that runs Medicare, and is adjusted for how sick the person is. Humana then pays that person's doctors, hospitals and drug bills and keeps what remains. If bills run ahead of the payment, profit disappears fast. If they run behind it, profit is large. That is why a business with $129.7B of revenue earned $2.7B of operating income in 2025, a margin of 2.1% (calculated).2
Total revenues, 2016 to 2025
Calendar years, US$ billions, as filed.
- Total revenues, 2025 $129.7B
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Total revenues (reported) | $54.4B | $53.8B | $56.9B | $64.9B | $77.2B | $83.1B | $92.9B | $106.4B | $117.8B | $129.7B |
Where the money comes from
The 2025 10-K gives revenue by product. Individual Medicare Advantage premiums were $90.4B, 70.3% of premiums and services revenue. Group Medicare Advantage, sold to employers and public bodies for their retirees, was $9.0B. Stand-alone Part D drug plans were $6.8B, state Medicaid contracts and other $14.5B, Medicare Supplement $1.1B and specialty products $1.0B.2 In all, 83% of 2025 revenue came from federal government contracts, and 14% came from one place: the 1.0M individual Medicare Advantage members in Florida, who produced $17.8B.2 The pharmacy benefit manager, Humana Pharmacy Solutions, serves Humana's own members and is eliminated in the accounts.4
Where Humana earns its revenue
Premiums and services by product, 2025, and the same lines for the first half of 2026.
| Product | 2025 revenue | Share of 2025 | First half 2026 | Members, 30 June 2026 |
|---|---|---|---|---|
| Individual Medicare Advantage | $90.4B2 | 70.3% (calculated) | $57.1B, up 25.7%6 | 6.45M, up 23.4% on a year earlier6 |
| Group Medicare Advantage | $9.0B2 | 7.0% (calculated) | $5.8B, up 25.8%6 | 727,2006 |
| Medicare stand-alone drug plans | $6.8B2 | 5.3% (calculated) | $5.6B, up 77.1%6 | 3.95M, up 62.6%6 |
| State-based contracts (Medicaid) and other | $14.5B2 | 11.2% (calculated) | $6.8B, down 2.8%6 | 1.60M6 |
| Medicare Supplement and specialty | $2.1B (calculated)2 | 1.7% (calculated) | $1.2B (calculated)6 | 551,500 supplement6 |
| CenterWell, outside revenue | $4.8B2 | 3.7% (calculated) | $3.0B6 | 622,000 primary-care patients9 |
| Military administrative services (TRICARE) | $1.0B with other services2 | 0.8% (calculated) | $0.4B6 | 4.63M beneficiaries6 |
The shape of the last year matters. Humana ended 2025 with 412,500 fewer individual Medicare Advantage members than a year earlier, 5.25M against 5.66M, because it left plans and counties that lost money.2 Then in the 2026 enrollment season it did the reverse. It added about 1.0M members in the annual election period, and 1,204,400 in the first half of the year, to reach 6.45M.496 Over 70% of the new sales were people switching from rival plans, and nearly 30% were former Humana members who had left.4 Retention, the share of members who stay, improved by more than 500 basis points, beating the 350 to 450 basis points the company had set as a goal for 2028.4
Individual Medicare Advantage members
Millions of members at period end
- Jun 2026 6.45M
I read this as a deliberate swing. In 2025 Humana chose margin over members. In 2026 it chose members, after the government's quality scores, the Star Ratings, cut what it earned on each one. New members cost more than members who have stayed for years, so the 2026 benefit ratio is guided to 92.75% for the Insurance segment, up from 90.4% in 2025.32 The bet is that those members become profitable in 2027 and 2028. That bet is the whole case, and the rest of this page tests it.
The insurer
Two statistics describe an insurer. The benefit ratio is medical and drug costs as a share of premiums. The operating cost ratio is administrative cost as a share of revenue. For Humana the benefit ratio was 90.2% in 2025 and the operating cost ratio 12.0% on the filing's definition.2 In the second quarter of 2026 the Insurance segment's benefit ratio was 91.2% and its operating cost ratio 7.1%, a fall of 1.2 points from a year earlier as revenue grew faster than costs.9 The company guides the whole-year Insurance benefit ratio to 92.75%, plus or minus a quarter of a point, and the third quarter to slightly above 94%.39 The ratio rises through the year because members reach their deductibles and use more care, and because the drug benefit changed under the Inflation Reduction Act.2 That is also why 2026 earnings are almost all in the first half: adjusted EPS was $17.91 in the first six months, and the third quarter is guided to about a $1.00 loss.59
Medicare Advantage pays by risk adjustment. CMS gives each member a risk score built from the diagnoses doctors submit, and pays more for sicker members. That makes coding of diagnoses a profit lever and a legal exposure. In 2024 CMS began a three-year phase-in of a new model, called V28, which pays less for some diagnoses; 2026 is the final year of the phase-in.6 The 10-Q says Humana's actuarially certified bids through 2027 keep its position that CMS is required to apply an adjustment for fee-for-service coding differences in any audit of past payments.6
CenterWell
CenterWell had $22.5B of revenue in 2025, of which $17.7B came from Humana's own insurance plans, and income from operations of $1.34B, about the same as in 2024.2 Its three lines are these.
- Primary care. Clinics for seniors under the Conviva and CenterWell Senior Primary Care names. At 30 June 2026 there were 398 centers and about 622,000 patients, up 27% since the start of the year, partly through the purchase of The Villages Health in the fourth quarter of 2025 and MaxHealth in Florida in February 2026 for about $908M in cash.96 The clinics take on the cost of care for each patient in return for a fixed payment, and V28 cut that payment, so the company is working to offset it with productivity.9
- Pharmacy. CenterWell Pharmacy fills prescriptions by mail and runs a specialty pharmacy, with $11.7B of 2025 revenue from Humana's own plans and $1.2B from others.2 Mail order is a way to steer members to the cheapest source and to keep the margin inside the group.
- Home. CenterWell Home Health in 37 states, a value-based home care unit called OneHome, and a 35% minority stake in Gentiva Hospice that Humana has agreed to sell, valued at about $900M.29
Humana does not own all of the clinics it runs. 146 clinics were held in a partnership with the private-equity firm Welsh, Carson, Anderson & Stowe at the end of 2025, with put and call options on the stake.2 The options are valued each quarter and swing the reported profit by hundreds of millions: they were $513M of expense in 2025 and are one reason GAAP EPS of $9.84 is so far below the adjusted $17.14.2 On 13 October 2026 Humana announced that BlackRock, through HPS, will buy the WCAS stake, valued at about $2.8B, and form a new joint venture covering nearly 150 clinics with no put option. Humana can buy clinics from it from 2028, and BlackRock can force a sale of what is left after 2033.15 The company expects a significant fall in the liabilities on its balance sheet. I can't judge the price Humana will eventually pay to buy the clinics back, or the return protections it gave BlackRock, because the terms are not in the release.
Income from operations by segment
US$ billions, GAAP segment income from operations, before corporate items. The 2026 CenterWell bar is the midpoint of guidance.
- Insurance, 2025 $1.66B
- CenterWell, 2025 $1.34B
Medicaid
Humana has state Medicaid contracts in Florida, Kentucky, Illinois, Indiana, Louisiana, Ohio, Oklahoma, South Carolina, Virginia and Wisconsin, and says its footprint spans 13 states with Georgia and Texas expected to start in 2027.24 Membership was 1.60M at 30 June 2026. The company was awarded a statewide Illinois contract that starts in January 2027, and its Florida contract, its largest, was extended to 31 January 2035. It says the Texas and Georgia awards face procurement challenges.96 Medicaid is a small profit pool today but the company expects its margin to improve as new contracts mature, and I treat it as an option, not a pillar.
The moat
A durable advantage is a cost or a habit that a rival with money and talent can't copy in a reasonable time. Humana has some real ones. It also has one big dependency, the government's rate and its quality score, and neither is in its control. I try to separate the two.
The advantage, source by source
What protects the business, the evidence for each, and how a rival or a regulator would attack it.
| Source | Evidence | How durable | How it is attacked |
|---|---|---|---|
| Scale in Medicare Advantage | 6.45M individual members and 727,200 in group plans at 30 June 2026; plans in all 50 states62 | Medium. Many rivals have scale; UnitedHealth is larger | Rivals’ benefits and commissions; CMS rate cuts that make the whole line unprofitable |
| Integrated care | 622,000 primary-care patients, a mail-order pharmacy with industry-leading mail penetration, home health in 37 states92 | Medium to strong. A rival can buy clinics but not a ten-year base of senior patients | V28 cuts to clinic pay; costs of buying clinics back; value-based contracts that share losses |
| Dual-eligible and Medicaid know-how | 959,900 dual-eligible special needs plan members in individual Medicare Advantage; Medicaid in 13 states64 | Medium. The state contracts are won on price and can be contested | State procurement; Medicaid enrolment falling nationally4 |
| Star Ratings | 95% of members in plans rated 4 stars or more for 2027, 42% at 4.5; 20% for 2026710 | Unproven. The score was lost once in 2025 and 2026 and regained in 2027 | CMS changes the measures and the cut-offs each year |
| Member loyalty | Retention up more than 500 basis points in the 2026 enrollment season4 | Medium. Seniors switch plans each autumn | Rival benefits, brokers, and Humana’s own cuts to benefits |
| Balance sheet | Debt $14.2B; debt to total capital 42.7%, above the 40% target; rated BBB at S&P and Baa2 at Moody’s6 | Weak. It limited how much membership the company could fund | A rating cut; an unexpected claims charge |
The pattern is that the advantages are real in care delivery and weak in the part that sets the profit. Humana can steer a patient into its own clinic and pharmacy, which lowers costs. It can't set the rate. In 2027 CMS pays Medicare Advantage plans on average 2.48% more, 4.98% when it adds the growth it expects from changes in coding and the mix of members, against medical and drug costs the company expects to rise at a high single-digit rate.169 The gap between the two is what the company has to close by trimming benefits, better care and lower costs.
Evidence it is widening
- The 2027 Star Ratings put 95% of members in plans of four stars or more, and the company says it exceeded its goal of Top Quartile results, defined as Stars revenue per member 10% above the median of its peers.78
- Retention rose more than 500 basis points, and the share of new sales through higher-value channels was above 75%.4
- The Insurance segment's operating cost ratio fell 1.2 points in the second quarter to 7.1%.9
- CenterWell patients rose 27% in six months, and the company says it is offsetting V28 and expanding margin.9
Evidence it is narrowing
- Adjusted EPS fell from $26.09 in 2023 to $16.21 in 2024 and is guided to at least $9.00 for 2026.17185
- Only 20% of members were in four-star plans for 2026, and the payment for 2027 still reflects those scores, improved by moving members to better contracts.10
- Prior-year claims reserves released $442M in the first half of 2026 against $638M a year earlier, so less of the profit is coming from old estimates.3
- Days in claims payable fell to 33.1 from 36.5 a year earlier, partly because pharmacy claims, which are paid fast, are a bigger share of costs. I can't tell from the filings whether reserves are cautious or thin.3
- The 2027 payment rate proposed in January's advance notice was 0.09%; it reached 2.48% only in the final announcement, and CMS excluded diagnoses from unlinked chart reviews, an effect of 1.53%.16
On balance I think the position is wide in integrated care, medium in Medicare Advantage scale, and unproven in quality scores. For the first I give credit. For the second I assume an ordinary margin in a good year and a poor one in a bad year, which is why my bear case is as low as it is. For the third I take the 2027 result as real but not permanent.
The competitive advantage
The honest comparison for Humana is the other large insurers, UnitedHealth, Elevance, Cigna and CVS Health through Aetna. Humana's difference is concentration. UnitedHealth and Cigna have large businesses outside Medicare Advantage, Elevance has Blue Cross plans, and CVS has a pharmacy benefit manager and drugstores. Humana has 70% of its premiums in one Medicare product. The table sets the five side by side on 2025 as filed, with operating income before any adjustment, and prices in Q4 2026.
Humana against the large insurers
FY2025 revenue, GAAP operating margin and GAAP earnings per share, and the price in Q4 2026.
| Humana | UnitedHealth | Elevance | Cigna | CVS Health | |
|---|---|---|---|---|---|
| Revenue, 2025 | $129.7B2 | $447.6B11 | $199.1B11 | $274.9B11 | $402.1B11 |
| Operating margin, GAAP | 2.1% (calculated)2 | 4.2% (calculated)11 | 3.6% (calculated)11 | 3.3% (calculated)11 | 1.2% (calculated)11 |
| Diluted EPS, GAAP, 2025 | $9.842 | $13.2311 | $25.2111 | $22.1811 | $1.3911 |
| Price in Q4 2026 | $417.421 | $409.3811 | $434.1811 | $305.4111 | $79.9611 |
| Price to GAAP EPS | 42.4 times (calculated)1 | 30.9 times (calculated)11 | 17.2 times (calculated)11 | 13.8 times (calculated)11 | 57.5 times (calculated)11 |
| Price to 2026 EPS guide | 46 times on “at least $9.00” adjusted (calculated)15 | not compared | not compared | not compared | 9.8 times on “at least $8.20” adjusted (calculated)1911 |
Three things stand out. First, Humana earns a thinner operating margin than UnitedHealth, 2.1% against 4.2%, and the same order as CVS and Cigna (calculated).211 Second, Humana and CVS are the two that trade at more than 40 times their latest GAAP earnings, 42 and 58 times, because their latest earnings are depressed (calculated). Third, the read-across from this week is mixed. CVS reported third-quarter adjusted EPS of $2.09, raised its full-year guide to at least $8.20, and described cost trends as elevated with a cautious view for the rest of the year.19 Aetna is a direct Medicare Advantage rival, and its report is evidence that margin recovery is possible in 2026. It says nothing yet about 2027 pricing. The UnitedHealth page on this site notes that Humana's share of Medicare Advantage enrollment rose from 17% to 20% in a year while UnitedHealth's fell from 29% to 26%. That is the reverse of Humana's 2025.
Where Humana wins
- 70% of its premiums come from individual Medicare Advantage, so it has a deep base of data on seniors and the most to gain from better care of them.2
- It owns the clinics, pharmacy and home services its members use. 68% of individual Medicare Advantage members were in value-based arrangements at the end of 2025.2
- It needs little capital for its care businesses: capital spending was $546M in 2025, and is guided to about $650M for 2026.143
- On its own measure its 2027 quality result is above the peer median by more than the 10% it set as a goal, while UnitedHealth and CVS/Aetna both lost share of members in four-star plans.821
Where it loses
- Concentration. One product, one payer, and one large state: Florida is 14% of revenue.2
- Margin and consistency. Adjusted EPS fell 38% in 2024 and about 47% to the 2026 floor.185
- Balance sheet. Debt to capital is 42.7%, with $2.3B of short-term debt and parent cash of $1.6B that the company says was lifted by the timing of a $1.05B Medicaid payment that settled just after quarter end.63
- Scale in pharmacy. Its pharmacy benefit manager, unlike Optum Rx at UnitedHealth or Caremark at CVS, works for its own plans only, and the activity is eliminated in the accounts.4
Management
Jim Rechtin joined Humana in January 2024 as president and chief operating officer and became chief executive on 1 July 2024. He ran Envision Healthcare from 2020 to 2023, was president of OptumCare in 2019, and held senior roles at DaVita Medical Group from 2014 to 2019.2 Celeste Mellet became chief financial officer in January 2025 after being chief financial officer of Global Infrastructure Partners, Evercore and Fannie Mae, and she spent 18 years at Morgan Stanley.2 The chair of the board, Kurt Hilzinger, has been a director since 2003.12 Most of the senior team is new, and the Medicare Advantage and insurance leadership changed again in 2026.22
Who runs it
The senior officers and the board changes of 2026, from the 10-K, the proxy and the 8-Ks.
| Name | Role | Background and tenure |
|---|---|---|
| Jim Rechtin | Chief executive and director | Joined January 2024; CEO since 1 July 2024; earlier Envision Healthcare CEO, OptumCare, DaVita Medical Group2 |
| Celeste Mellet | Chief financial officer | Since January 2025; earlier Global Infrastructure Partners, Evercore, Fannie Mae, Morgan Stanley2 |
| Aaron Martin | President, Medicare Advantage | Joined January 2026 from Amazon, where he was vice president of healthcare; earlier Providence2 |
| George Renaudin | President, Insurance, until his retirement in 2026 | At Humana since 2004; leaves by the third quarter of 2026 and stays as an adviser to 202722 |
| Sanjay Shetty, M.D. | President, CenterWell | Since April 2023; previously President of Steward Health Care2 |
| David Dintenfass | President, Enterprise Growth | Joined February 2024 from Fidelity Investments2 |
| Kurt Hilzinger | Chair of the board | Director since July 200312 |
| Robert Field; Frederick Crawford; Paul Smith | Directors | Elected 10 April and 28 July 2026, taking the board from ten to thirteen2324 |
The turnover cuts both ways. A new team can reset a business that had lost its way, and in 2025 it did things a settled team might not have done: it exited the employer-group medical business, left unprofitable plans and counties, and cut costs under what it calls value creation initiatives.2 The other side is that the people promising a recovery by 2028 have run the company for about two years, and the people who priced 2024 are gone.
Pay, and what it pays them to do
Rechtin's reported pay for 2025 was $18.76M: a salary of $1.35M, stock awards of $13.87M, a cash bonus of $3.03M and $0.51M of other items.12 The annual bonus has four parts. Pre-tax earnings count for 50%, the Star Ratings measure 20%, integrated health, which means members using two or more CenterWell services or growth in primary care patients, 15%, and clinical cost reductions 15%.12 The board changed the earnings measure for 2025 from adjusted EPS to pre-tax earnings, saying EPS can be swung by things outside management's control.12 Results came in at 168.6% of plan: pre-tax earnings of $2.841B against a target range of $2.63B to $2.777B, and the three other measures at the maximum. The board then used negative discretion, and the plan paid 112%.12
The long-term awards for 2025 were 60% performance units and 40% time-based units, with no options. The performance units pay on three years of total shareholder return against a health care provider index for 50%, Star Ratings performance for 30%, and productivity for 20%.12 So follow the money. Management is paid for earnings before tax, for a quality score, for use of the group's own services, and for relative share price over three years. It is not paid for return on the capital it spends, for cash left after capital, or for the size of the balance sheet. The Stars measure in the awards was the right target for 2025 and 2026, and it has now been met for 2027, so the next set of targets matters more than this one. I'd like to see return on capital in the plan, because capital is exactly where the odds of a mistake are highest at an insurer that is growing 25% a year.
Their own money
Rechtin owned 44,251 shares at 15 January 2026, about $18.5M at $417.42, and he has bought shares with his own cash: 6,530 shares at $229.25 on 16 May 2025, about $1.5M.12131 Sanjay Shetty, the head of CenterWell, bought 810 shares at $185.21 on 25 February 2026.25 All directors and executive officers as a group held 254,101 shares, about 0.2% of the company.12 That is a stake, not a founder's.
The largest holders reported in the proxy are The Vanguard Group with 11.8%, Dodge & Cox with 8.5% and BlackRock with 7.7%.12 Dodge & Cox's 13F filing shows 11,380,673 Humana shares at 31 March 2026 and 10,940,380 at 30 June 2026, a cut of 3.9%, worth $4.35B, 2.3% of its reported portfolio, or 9.1% of Humana's shares (calculated).2627 That is a holding, not a stated view. I did not find anything Dodge & Cox has said about Humana in the documents I opened.
What they did with the money, over a full cycle
I take 2016 to 2025 as the cycle. It covers a failed merger with Aetna, a pandemic, a rise in profit to 2022, and the Medicare Advantage squeeze. In those ten years Humana generated $33.8B of operating cash. It spent $8.0B on capital, $6.0B on acquisitions, $3.3B on dividends and $12.2B on buybacks.14 Reported net income over the same ten years was $21.4B (calculated).14
The capital record
2016 to 2025, US$ billions, and the result.
| Use | Ten-year total | Comment |
|---|---|---|
| Operating cash flow | $33.8B (calculated)14 | From $1.9B in 2016 to a high of $5.6B in 2020 and $0.9B in 2025; timing of CMS payments moves it by billions |
| Capital spending | $8.0B (calculated)14 | Up to $1.3B in 2021; $0.5B in 2025 |
| Acquisitions | $6.0B (calculated)14 | $4.2B in 2021; small since; $0.9B for MaxHealth in the first half of 20266 |
| Dividends | $3.3B (calculated)14 | $0.885 a quarter since early 2024, to be held flat in 202624 |
| Buybacks | $12.2B (calculated)14 | $3.4B in 2017; $4.5B in 2022 to 2024; $151M in 2025 |
| Diluted shares | 151M to 121M, down 20% (calculated)14 | 120.1M outstanding at 30 June 20266 |
| Debt, 30 June 2026 | $14.2B (calculated)6 | $2.3B short term and $12.0B long term; $1.0B of junior subordinated notes at 6.625% issued in March 20266 |
Operating cash flow, capital spending and money returned
US$ billions, calendar years
- Operating cash flow, 2025 $0.9B
- Capital spending, 2025 $0.5B
- Dividends and buybacks, 2025 $0.6B
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Operating cash flow (reported) | $1.9B | $4.1B | $2.2B | $5.3B | $5.6B | $2.3B | $4.6B | $4.0B | $3.0B | $0.9B |
| Capital spending (reported) | $0.5B | $0.5B | $0.6B | $0.7B | $1.0B | $1.3B | $1.1B | $1.0B | $0.6B | $0.5B |
| Dividends and buybacks (reported) | $0.3B | $3.6B | $1.4B | $1.4B | $2.1B | $0.4B | $2.5B | $2.0B | $1.2B | $0.6B |
Three things stand out. First, the share count fell 20% in nine years, which is real value if the stock was bought at good prices. Second, it was not. In 2022, 2023 and 2024 Humana spent $4.5B on buybacks, in years when the average daily close was $469, $490 and $335, and the stock then fell to a low of $163.67 in March 2026 (calculated).141 In the first half of 2026, with the stock near $180, it spent $103M, 0.6M shares at an average $182.13, a good price but a tiny amount.6 Third, the price is $417.42 against $167.42 in November 2016, up 149% in ten years, and adjusted EPS went from $9.57 to $17.14, up 79% (calculated).1284
The record is fair, not good. The company bought most of its stock in 2022 and 2023, when it was dear, and almost none in 2025, when it was cheap. The best call in recent years was the 2025 decision to give up members for margin, and the current one is to take members back. The 10-K says total net receivables rose with the changes to Part D, which is one reason cash flow lagged profit.2 I call the capital allocation fair, not good, and note the dividend of $3.54 a share, a yield of 0.8% (calculated), is a minor part of the return.
Financials
Humana's accounts are noisy, and four features make reported earnings a poor guide. First, the company reports an adjusted profit that leaves out the changing value of put and call options on its clinics, a transformation program that has charged $436M, $281M and $449M in the last three years, impairments, and amortization. Second, CMS payments are lumpy, so operating cash flow jumps around. Third, the profit depends on estimates of claims not yet paid. Fourth, 2026 is a year of 25% membership growth that costs profit before it earns any. I try to see through each of them.
Margins
The operating margin on reported figures ran between 2.1% and 7.9% and ended at 2.1% in 2025 (calculated).14 Profit per dollar of revenue peaked in 2020 when people postponed care in the pandemic, and has fallen since as costs caught up with rates. The consolidated benefit ratio rose from 83.1% in 2020 to 90.2% in 2025, a worsening of 7.1 points that cost about $9B of pretax income a year at the 2025 level of premiums (calculated).292
Consolidated benefit ratio
Benefits expense as a percentage of premiums revenue, consolidated
- First half of 2026 90.2%
Earnings quality
Adjusted EPS and GAAP EPS tell different stories. Over the ten years the adjusted figures sum to $178.41 a share and the reported figures to $163.02, a gap of $15.39 (calculated).1428184 The 2017 GAAP figure includes the break-up fee from the terminated Aetna merger.32 For 2026 the gap is $2.48 a share: guidance is “at least $9.00” adjusted and “at least $6.52” GAAP, because of put and call charges of $1.47, value creation initiatives of $1.27, impairments of $0.17 and amortization of $0.30, less a tax effect of $0.73.5
Adjusted and reported earnings per share
US$ per share. Adjusted EPS as Humana reports it; GAAP diluted EPS as filed.
- Adjusted EPS, 2025 $17.14
- GAAP diluted EPS, 2025 $9.84
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Adjusted EPS (reported) | $9.57 | $11.71 | $14.55 | $17.87 | $18.75 | $20.64 | $25.88 | $26.09 | $16.21 | $17.14 |
| GAAP diluted EPS (reported) | $4.07 | $16.81 | $12.16 | $20.10 | $25.31 | $22.67 | $22.08 | $20.00 | $9.98 | $9.84 |
A second point is the season. Humana's profit is made in the first half. Adjusted EPS was $7.61 in the second quarter and $17.91 for the six months; the third quarter is guided to about a $1.00 loss, which leaves a fourth-quarter loss of about $7.91 a share if the full year comes in at exactly $9.00 (calculated).59 The reason is cost. Members pass their deductibles, use more care, and take more drugs as the year goes on, and the new members of 2026 cost more than the old ones. The guide is a floor, “at least”, and the company calls its guidance approach appropriately conservative.4 If you annualize a good first half you will be wrong by a lot.
Reserve releases
An insurer books costs for claims it has not paid, and later adjusts the estimate. In the first half of 2026 favorable development of prior-period claims was $442M against $638M a year earlier, and in the second quarter $53M against $161M.3 The 10-K reports $1.0B of favorable development in 2025 and $701M in 2024, about 80 and 60 basis points of the benefit ratio.2 So the release is a smaller part of profit this year. I cannot tell from the filings whether reserves are cautious or thin. Days in claims payable of 33.1 days at 30 June are down 3.4 days on a year earlier, which the company ascribes to fewer claims in process, timing of provider payments and more drug costs.3 A shortfall would show up as a charge in a later quarter, which is how 2024 went.
From profit to cash
Operating cash flow was $0.9B in 2025 against net income of $1.2B, and $3.0B in 2024.2 The 2025 drop was timing: receivables rose with the Part D changes. In the first half of 2026 it was $3.2B against $1.6B, helped by a $2.9B rise in benefits payable and a $1.05B Medicaid payment that came shortly after quarter end.63 Guidance for the full year is $2.5B to $2.9B, with capital spending of about $650M.3 Premiums received before claims are paid are real cash, but they are the insurer's float and sit in regulated subsidiaries, so I do not count them as owner cash.
What an owner could take out
Here is the number I care most about. If Humana kept everything in good order, how much could it pay its owners each year? I start from adjusted income and take off the things it leaves out that a shareholder still pays for. Stock pay is already in adjusted income, so I do not add it back. I deduct the average charge for the transformation program, $389M a year before tax for 2023 to 2025, because it has come every year, and I deduct the capital the insurance subsidiaries must keep as premiums grow. The company disclosed more than $3B of added capital needs between the end of 2024 and 2026, on about $45B of added premiums, which is 7 cents on the dollar.43
What an owner could take out
Owner cash: adjusted income less the real costs it leaves out, US$ billions.
| Step | 2026 on the guide floor | 2028 in my base case |
|---|---|---|
| Adjusted income | $1.09B (calculated)3 | $3.78B (estimate) |
| Less transformation charges, after tax | −$0.29B (estimate)2 | −$0.29B (estimate)2 |
| Less capital kept for premium growth, 7% | −$2.25B (estimate)4 | −$0.46B (estimate) |
| Less capital spending above depreciation | about nil (estimate)3 | about nil (estimate) |
| Owner cash | −$1.45B (estimate) | $3.04B (estimate) |
| Per share | −$12.01 (estimate) | $25.12 (estimate) |
| As a share of adjusted EPS | not meaningful | 80% (estimate) |
| Cash flow from operations, for comparison | $2.5B to $2.9B guided3 | not modelled |
The answer for 2028 is about $3.0B, or $25.12 a share, 80% of my base adjusted EPS of $31.28 (estimate). For 2026 the same arithmetic gives a negative number, because a company that grows its premiums by $32B in a year has to tie up about $2.3B of capital while it earns $1.1B. That is not a defect in the company, it is what the first year of a growth swing looks like, and it is why I will not pay for 2026 adjusted EPS. I can't pin the capital rate more tightly, because Humana does not tell us how much of the $15.5B of statutory capital in its subsidiaries is required and how much is spare. A rate of 5% instead of 7% would add about $1 a share to 2028 owner cash, and 10% would take off about $1.60.6
The balance sheet
At 30 June 2026 Humana held $6.9B of cash and $17.6B of investments, mostly in regulated subsidiaries; the parent held $1.6B of cash and short-term investments, helped by the timing of the $1.05B Medicaid payment.63 Debt was $14.2B, of which $2.3B was short term, mostly commercial paper of $1.3B and notes due within a year. Equity was $19.2B, and goodwill $10.5B, up $0.8B with MaxHealth. Benefits payable were $12.9B, up from $10.0B at the end of 2025.6 Debt to total capital was 42.7%, above the company's long-term target of about 40%. The ratings were BBB at S&P and Baa2 at Moody's.6 In March 2026 it issued $1.0B of junior subordinated notes at 6.625% due 2056, which the company says gets partial equity credit from the rating agencies, and in May 2026 it set up $1.5B of contingent capital facilities.6389 These are the actions of a company that financed growth by stretching its balance sheet. I do not subtract net debt in my valuation, because the owner cash I value is already after the interest paid; but the balance sheet matters in a bad year, and it is why my bear case is as low as it is.
Humana, ten years
Calendar years. US$ unless marked.
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Revenue (reported) | $54.4B | $53.8B | $56.9B | $64.9B | $77.2B | $83.1B | $92.9B | $106.4B | $117.8B | $129.7B |
| Operating income, GAAP (reported) | $1.74B | $4.26B | $3.10B | $3.19B | $4.99B | $3.15B | $3.80B | $4.01B | $2.56B | $2.70B |
| Operating margin (calculated) | 3.2% | 7.9% | 5.4% | 4.9% | 6.5% | 3.8% | 4.1% | 3.8% | 2.2% | 2.1% |
| Pretax income, GAAP (reported) | $1.55B | $4.02B | $2.06B | $3.46B | $4.60B | $3.35B | $3.57B | $3.38B | $1.72B | $1.55B |
| Net income to Humana (reported) | $0.61B | $2.45B | $1.68B | $2.71B | $3.37B | $2.93B | $2.81B | $2.49B | $1.21B | $1.19B |
| Diluted EPS, GAAP (reported) | $4.07 | $16.81 | $12.16 | $20.10 | $25.31 | $22.67 | $22.08 | $20.00 | $9.98 | $9.84 |
| Adjusted EPS (reported) | $9.57 | $11.71 | $14.55 | $17.87 | $18.75 | $20.64 | $25.88 | $26.09 | $16.21 | $17.14 |
| Diluted shares (reported) | 151M | 146M | 138M | 135M | 133M | 129M | 127M | 124M | 121M | 121M |
| Benefit ratio, consolidated (reported) | n/a | n/a | n/a | 85.6% | 83.1% | 86.7% | 86.3% | 87.3% | 89.8% | 90.2% |
| Operating cash flow (reported) | $1.9B | $4.1B | $2.2B | $5.3B | $5.6B | $2.3B | $4.6B | $4.0B | $3.0B | $0.9B |
| Capital spending (reported) | $0.5B | $0.5B | $0.6B | $0.7B | $1.0B | $1.3B | $1.1B | $1.0B | $0.6B | $0.5B |
| Free cash flow (calculated) | $1.4B | $3.5B | $1.6B | $4.5B | $4.7B | $0.9B | $3.4B | $3.0B | $2.4B | $0.4B |
| Stock pay (reported) | $0.12B | $0.16B | $0.14B | $0.16B | $0.18B | $0.18B | $0.22B | $0.17B | $0.21B | $0.24B |
| Dividends paid (reported) | $0.18B | $0.22B | $0.27B | $0.29B | $0.32B | $0.35B | $0.39B | $0.43B | $0.43B | $0.43B |
| Buybacks (reported) | $0.10B | $3.37B | $1.09B | $1.07B | $1.82B | $0.08B | $2.10B | $1.57B | $0.82B | $0.15B |
| Acquisitions, net of cash (reported) | $0.01B | $0.03B | $0.35B | $0.00B | $0.71B | $4.19B | $0.34B | $0.23B | $0.09B | $0.08B |
| Year-end share price (reported) | $204.03 | $248.07 | $286.48 | $366.52 | $410.27 | $463.86 | $512.19 | $457.81 | $253.71 | $256.13 |
Valuation
Start with what would go wrong
Before any numbers, I ask what would most likely make this a bad investment from here, and work back from that. For Humana the problem is not a lack of customers; membership is growing 25%. It is that the price paid for each customer is set by the government, while the cost of caring for them is not. Here are the ways it goes badly wrong, in the order I think most likely.
- Costs outrun the rate for another two years. The government raised the 2027 payment 2.48%, 4.98% with its estimate of rising risk scores, while Humana plans for medical and drug costs to rise at a high single-digit rate.169 Each point of benefit ratio on about $155B of premiums is $1.55B of pretax income, or $9.54 a share (estimate). A swing of three points, about the 2.9 points between 2023 and 2025, would take about $29 off a share, nearly a third of my 2028 base.312
- The rules on risk adjustment turn against it. CMS excluded diagnoses from unlinked chart reviews starting in 2027, a 1.53 point effect on payments, and has told Humana it will use its final audit rule without the fee-for-service adjustment the company relies on; a court vacated that rule in September 2025 and the government has appealed.166 The Justice Department's Civil Division has also sent Humana information requests about its risk adjustment practices, and a securities class action over 2022 to 2024 statements is pending.6 I can't put honest odds on these, so I don't try. I show what a lost margin point does: $8.0 a share in 2028 (estimate).
- A growth bet meets a stretched balance sheet. The company grew individual members 23% in a year, found the capital through debt, junior notes and reinsurance, and sits above its own leverage target, with $1.6B at the parent.638 If the 2027 bids are wrong or the third quarter surprises, it has less room than UnitedHealth to absorb it, and before the new joint venture, calling the first two groups of clinics in 2026 would have cost $1.0B to $1.6B.615
A fourth way is simply the price. The shares have risen 155% since March, so a good outcome is already partly in the price, and a small miss on a base this low can move the stock by a third. I can show what each of these does to the value; I can't say which will happen.
What the price implies
Ways to read the price
At $417.42, the close in Q4 2026.
| Measure | Value | Comment |
|---|---|---|
| Market value | $50.1B (calculated)16 | 120.08M shares outstanding at 30 June 2026 |
| Debt | $14.2B (calculated)6 | Parent cash and short-term investments $1.6B at 30 June, helped by payment timing3 |
| Price to 2026 adjusted EPS guide floor | 46.4 times (calculated)15 | On “at least $9.00” |
| Price to 2025 adjusted EPS | 24.4 times (calculated)14 | On $17.14 |
| Price to 2023 adjusted EPS | 16.0 times (calculated)117 | On $26.09, the peak |
| Price to my 2028 base adjusted EPS | 13.3 times (estimate) | On $31.28; 9.7 times my bull and 29.8 times my bear |
| Price to GAAP EPS, 2025 | 42.4 times (calculated)12 | On $9.84, after put and call charges |
| Price to book value | 2.6 times (calculated)6 | On $19.2B of equity at 30 June 2026 |
| Dividend yield | 0.85% (calculated)2 | $0.885 a quarter, held flat for 20264 |
| Ten-year Treasury | 4.90% (reported)39 | Close in Q4 2026 |
The share price at each year end
US$ per share, year-end close; the last point is the close in Q4 2026
- Close in Q4 2026 $417.42
Over ten years the price went from $167.42 to $417.42, up 149%, while adjusted EPS went from $9.57 to $17.14 in 2025 and a guided $9.00 floor for 2026. At its 2022 high of $563 it was 22 times that year's adjusted EPS of $25.88; now it is 46 times a floor, 24 times last year, and 16 times the 2023 peak (calculated).137174 So on the company's own history, the price is not low. The multiple of 2026 is not meaningful, because 2026 is the trough of a swing in membership that the company chose.
Reverse DCF: what the price needs
Reverse DCF: the inputs
Everything held at my base case except the 2028 individual Medicare Advantage margin, which is solved so that the value equals the price.
| Input | Value |
|---|---|
| Discount rate | 9.5% (estimate) |
| Years | 2027 to 2036, then growth for ever |
| Starting point | 2026 adjusted EPS floor of $9.00; 2027 at a 0.8% individual MA margin (estimate) |
| Terminal growth | 2.5% (estimate) |
| Owner cash | Adjusted income less transformation charges after tax and 7% of added premiums kept as capital (estimate) |
| Shares | 121M diluted, held constant (estimate) |
| Solved | 2028 individual Medicare Advantage pretax margin |
Held at my base on everything else, the price needs the individual Medicare Advantage margin to reach about 2.1% in 2028 and the base growth after it, which gives 2028 adjusted EPS of about $32 (calculated). The company commits to “at least 3%”.940 So the price is about 0.9 point below management's target and above my own 2.0%. Two simpler tests show how much of the price is the recovery. If Humana earned the $17.14 of 2025 for ever, growing 2.5%, my model gives $194 a share, and the price is 2.2 times that. If it earned the $26.09 of 2023, its peak, for ever, it gives $325, still 22% below the price; and if it earned the guided $9.00 floor, $74 (estimate). So the price is not describing the business as it is. It is paying for adjusted earnings of about $32 a share to arrive by 2028 and then grow. That is a different claim from “cheap” or “dear”, and it is the claim the market is making.
There are two other ways to read the same price. One is that it equals my base cash flows at a discount rate of about 9.3%, which is 4.4 points above the Treasury and 0.2 points under the 9.5% I require. The other is the three cases below, in which the same price returns 4.8%, 9.3% and 12.7% a year (estimate). The bear case returns less than the 4.90% Treasury.39
From segments to EPS
I build 2027 and 2028 from the segments, because that is where the company's own targets sit. I back-tested the method. In 2025 the two segments earned $1.66B and $1.34B, and the proxy gives adjusted pre-tax earnings of $2.841B, which leaves about −$0.16B for corporate items, interest and other income; at an adjusted tax rate near 27% that is $17.14 a share (calculated).2124 For 2026 the guide has the Insurance segment at about breakeven and CenterWell at $1.3B to $1.8B on a GAAP basis, a 25.5% tax rate and 121M shares; $9.00 needs about $1.46B of pre-tax profit, so the middle of the CenterWell range covers it almost exactly (calculated).3 That is the first thing to see in the table: in 2026 the whole profit is CenterWell.
From segments to adjusted EPS
Pre-tax profit by piece, US$ billions, and the result per share. 2025 is reported, 2026 is the guide, 2027 and 2028 are my cases.
| Individual MA revenue | Individual MA margin | Insurance profit | CenterWell | Corporate and interest | Pre-tax | EPS | |
|---|---|---|---|---|---|---|---|
| 2025 reported | $90.4B2 | not disclosed | $1.66B2 | $1.34B2 | −$0.16B (calculated) | $2.84B12 | $17.144 |
| 2026 guide floor | about $114B (estimate) | slightly below 04 | about 03 | $1.3B to $1.8B3 | about −$0.1B (calculated) | about $1.46B (calculated) | $9.005 |
| 2027 bear | $119B (estimate) | 0.0% | $0.41B | $1.60B | −$0.35B | $1.65B | $10.19 |
| 2027 base | $123B (estimate) | 0.8% | $1.69B | $1.75B | −$0.30B | $3.14B | $19.31 |
| 2027 bull | $125B (estimate) | 1.5% | $2.71B | $1.90B | −$0.30B | $4.31B | $26.57 |
| 2028 bear | $122B (estimate) | 0.5% | $1.02B | $1.70B | −$0.45B | $2.27B | $14.01 |
| 2028 base | $130B (estimate) | 2.0% | $3.48B | $2.00B | −$0.40B | $5.08B | $31.28 |
| 2028 bull | $135B (estimate) | 3.0% | $5.20B | $2.20B | −$0.40B | $7.00B | $43.11 |
Each point of individual Medicare Advantage margin in 2028 is about $1.3B of pretax profit, or $8.0 a share (estimate). That is why the range is so wide. Management's target of 3% against my 2.0% is $8 a share in 2028, and my bear case of 0.5% is another $12 below. A reader who disagrees with me about one number can start with this one.
The discount rate
I discount at 9.5%. It is the 10-year Treasury at 4.90% plus about four and a half points.39 I use a higher rate than the 8.5% I used for UnitedHealth and the 9.0% for CVS Health, for four reasons. Humana is smaller, with $50.1B of market value against $367B at UnitedHealth (calculated).11 It has 70% of premiums in one government product. Its adjusted EPS has fallen 66% from the 2023 peak to the 2026 floor, and the company says 2028 will include a benefit it calls one-time.8 And its debt to capital is above its own target with a BBB rating. 9.5% is the least I ask for a business whose profit can fall by half in a year.
Bear, base and bull
Three cases
Drivers to 2028, the growth after it, and what each is worth. US$ per share.
| Bear | Base | Bull | |
|---|---|---|---|
| What happens to the rate and the cost | Costs run ahead of the 2.5% rate again; the Stars gain is passed to members in benefits | Costs track the rate; the Stars gain funds benefits and about two points of margin | Management’s 3% is reached, helped by the 2028 Stars payment |
| Individual MA margin, 2027 and 2028 | 0.0% and 0.5% | 0.8% and 2.0% | 1.5% and 3.0% |
| Average individual MA members, 2028 | 6.6M | 6.9M | 7.1M |
| Premium per member, yearly rise | 2.0% | 3.0% | 3.5% |
| Other Insurance margin, 2028 | 1.0% | 2.0% | 2.5% |
| CenterWell income, 2028 | $1.7B | $2.0B | $2.2B |
| Adjusted EPS, 2027 | $10.19 | $19.31 | $26.57 |
| Adjusted EPS, 2028 | $14.01 | $31.28 | $43.11 |
| Growth after 2028, fading to 2.5% | 3% | 6% | 9% |
| Owner cash per share, 2028 | $9.88 | $25.12 | $34.35 |
| Adjusted EPS, 2036 | $17.40 | $43.62 | $67.32 |
| Value per share | $137 | $405 | $635 |
| Yearly return at the price | 4.8% | 9.3% | 12.7% |
My base case is Humana recovering to a 2.0% margin on its largest product and no further. Adjusted EPS goes from $9.00 to $19.31 in 2027 and $31.28 in 2028, which is 20% above the 2023 peak of $26.09 and 1.8 times 2025, then grows 6% a year, fading to 2.5%. It is the pretax profit of about $5.1B on revenue I estimate at $183B, a margin of 2.8% against 4.3% in 2023 (estimate).17 The revenue is 75% larger than in 2023, which is why a thinner margin still gives a higher EPS. The bull case is the company's own: a 3.0% margin in 2028, which gives about $43. The company has not given an EPS target that I could check. Trade summaries of its June 2025 investor conference put the 2028 range at $36 to $44 and $38 to $42, and the conference deck was not open to my access, so I use the margin it states and build the EPS myself. The bear case has a margin of 0.5%, about $14, less than 2025.
Adjusted earnings per share in my three cases
US$ per share. The shaded band runs from bear to bull.
- Bear to bull, 2036 $17 to $67
- Base, 2036 $44
Show the numbers
| 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Bear (estimate) | $9.00 | $10.19 | $14.01 | $14.43 | $14.85 | $15.27 | $15.70 | $16.12 | $16.55 | $16.98 | $17.40 |
| Base (estimate) | $9.00 | $19.31 | $31.28 | $33.16 | $34.98 | $36.73 | $38.38 | $39.92 | $41.31 | $42.55 | $43.62 |
| Bull (estimate) | $9.00 | $26.57 | $43.11 | $46.99 | $50.79 | $54.41 | $57.80 | $60.85 | $63.50 | $65.68 | $67.32 |
What I can't judge
Some inputs I can't know, and I would rather say so than pretend. I don't know how much of the 2028 Stars payment will be given back in benefits. The company says it will manage its plans as if it were at the Top Quartile mark, and that some results above that mark in 2028 are one-time and will go to investments and shareholders, and it will say more when it gives 2028 guidance on the fourth-quarter 2027 call.8 TD Cowen's Ryan Langston estimated the recovery could be worth $3B or more of extra revenue in 2028.21 I don't know how medical costs will compare with the bids Humana filed for 2027. I can't forecast the Fifth Circuit rulings or what CMS will do with audits. I don't know whether reserves are cautious. I don't know what BlackRock's return protections will cost. I take the whole range to be wider than my three values suggest, and I would not argue with someone who put the bear at $80 or the bull at $750.
What the 2028 margin and the discount rate do to the value
Base case in every other respect; value per share at the end of 2026.
| 2028 margin | 2028 EPS | Discount rate 8.5% | 9.5% | 10.5% |
|---|---|---|---|---|
| 0.5% | $19.27 (estimate) | $270 (estimate) | $229 (estimate) | $199 (estimate) |
| 1.0% | $23.27 (estimate) | $339 (estimate) | $288 (estimate) | $250 (estimate) |
| 1.5% | $27.28 (estimate) | $408 (estimate) | $346 (estimate) | $300 (estimate) |
| 2.0% | $31.28 (estimate) | $477 (estimate) | $405 (estimate) | $351 (estimate) |
| 2.5% | $35.28 (estimate) | $546 (estimate) | $463 (estimate) | $401 (estimate) |
| 3.0% | $39.28 (estimate) | $615 (estimate) | $522 (estimate) | $452 (estimate) |
Multiply it out
My base needs several things at once. The 2027 bids hold, so that the individual margin reaches about 0.8% in 2027: I would give that 65%. The Star Ratings payment arrives in 2028 on the 2027 ratings, with no change to the rules: 90%. Medical costs run no higher than the bids for two years: 55%. No ruling or audit policy takes more than $1B a year from risk-adjusted payments: 75%. CenterWell reaches about $2.0B of income through the BlackRock transition: 70%. Multiplied, that is 17%, about one chance in six that all five hold. Management's 3% needs each of them to go better than my base, not just hold. Those odds are guesses and I do not use them in the values. They are why my base is only the middle, and not the likely outcome.
Quality and price are two questions
How good is the business? Mixed. The care model and the senior base are real, the membership is the largest it has been, and the quality score is back. But it has one product, one payer, and a record of $26.09 falling to $16.21 in a year, and 2026 is guided to $9.00. How good is the price? Not low. It sits 3% above my base value, 205% above my bear, and returns 9.3% on my base against the 9.5% I require. A good business at an uncertain price is one thing; an uncertain business at a price that already assumes the recovery is another, and this looks like the second.
It helps to compare with the next best use of the same dollar. A ten-year Treasury pays 4.90% with no risk to the dollars promised.39 Humana returns about 9.3% a year on my base, 4.4 points more, and 4.8% on my bear, which is less than the Treasury. On this site, UnitedHealth was valued at a base of $376 against a price of $400.44 on 2 November, a price that equals my base cash flows at about 8.2%, and CVS Health at a base of $111 against $88.51, about 10.7% on its base. Those pages use discount rates of 8.5% and 9.0%, and their prices moved on 4 November. On those pages' numbers, CVS offers the highest return and the largest gap to its base, UnitedHealth sits 7% above its base as Humana sits 3% above, and Humana has the widest range of the three: its bull is 4.6 times its bear, against 3.3 for UnitedHealth and 2.3 for CVS. At a similar expected return, a narrower range is worth more to me.
The margin of safety
My margin-of-safety price is $263, 35% below my base value. At $263 my bear case returns 6.2% a year, below the 9.5% I require but above the Treasury, and the base returns 12.9% (calculated). A 35% cushion is what I use when the bull is more than four times the bear: the wider the range of outcomes, the more I want to be paid for it, and 35% is the same as I used for UnitedHealth. The price is 59% above it, and the stock last closed below $263 on 7 May 2026, at $247.12, with a low of $163.67 on 12 March 2026.1
What it is worth, against the price
Value per share, my estimates, against the close in Q4 2026
- Bear to bull $137 to $635
- Base $405
- Price $417.42
- Margin of safety below $263
The case for the price
The price is 3% above my base value, so the question here is not whether the bull case can reach it. It can: my bull is worth $635. The question is what has to be true for the price to be right, what the market is leaning on, and what each side has to show.
What most people miss
First, the whole 2026 profit is CenterWell. The guide has the Insurance segment at about breakeven and CenterWell at $1.3B to $1.8B, and that covers the $9.00 almost to the cent (calculated).3 The insurer, 96% of outside revenue (calculated)2, has not yet earned the money the stock is priced on. Second, the 95% Star Ratings figure pays in 2028, not 2027. The 2027 payment still rests on the 2026 ratings, when preliminary data had 20% of members in plans of four stars or more; the company moved members into better contracts, which it said would lift the share in 2027 by a number it did not give.10 Third, growth was financed by balance-sheet work. The company says it avoided about $3.2B of capital contributions for 2026 through reinsurance and changes to legal entities, issued $1.0B of junior subordinated notes and set up $1.5B of contingent capital.389
The bull case
The bull case, as I understand it: Humana deliberately gave up members in 2025 to fix margin, then won them back in 2026, over 70% of the new sales being switchers from rival plans4; those members stay longer, cost less over time, and now sit in plans the government rates highly. From 2028 the quality bonus returns, the rate and the cost trend stop fighting each other, and a 3% margin on a $135B book is $4.1B of pretax profit, about $25 a share on its own and about $43 of EPS with the rest of the group in my bull.
Management's version has dates. On 29 July 2026 the company said its approach to 2027 bids would drive meaningful progress toward a sustainable pre-tax margin of at least 3% in 2028, and CEO Jim Rechtin said the first half was where it said it would be at its 2025 investor day.95 It reaffirmed the guide on 9 October and said it had exceeded its Top Quartile goal for the 2028 payment year; it will give a mark to market against its framework on 10 December 2026.8 Among analysts, TD Cowen's Ryan Langston estimated on 9 October 2026 that the Stars recovery could net Humana $3 billion or more of extra revenue in 2028.21 Revenue of that size with little added cost would be about $18 a share after tax on 121M shares if all of it reached profit (calculated). My bull adds $12 to my base, because the company says it will spend part of the benefit on members and investments.
The one holder I can check is Dodge & Cox, which held 10,940,380 shares at 30 June 2026, down from 11,380,673 at 31 March.2726 That is a holding, not a thesis, and it was trimmed in a quarter when the stock went from about $173 to about $397 at its quarter-end values. I found no one else with a current, public, attributable view that I could verify.
Against reality
Much of the bull case is already true. Membership is up 23%, retention is better, the quality score is back, the operating cost ratio is down 1.2 points, and the adjusted guide of at least $9.00 has not changed since February.987 I tested what happens if the company does what it says. A 3.0% margin on about $135B of individual Medicare Advantage revenue in 2028, with CenterWell at $2.2B, gives adjusted EPS of about $43. If Humana does that and keeps growing 9% a year after it, my bull is worth $635, 52% above the price. So yes, if they hit their targets, the price is possible.
How far is today from that? The Insurance segment earned $2.26B in the first half and the guide implies about zero for the year, so the second half loses about $2.3B (calculated).3 The individual margin is guided to slightly below breakeven for 2026 and has to rise by about 3.5 points in two years.4 The third quarter is guided to about a $1.00 loss and the benefit ratio to slightly above 94%.9 The 2027 payment rate is 2.48% against a cost trend in the high single digits.169 And the stock has already risen 155% from March on the recovery. That is why my base is a 2.0% margin and not 3%. The case for the market is the same facts read the other way: if 2026 is the bottom of a swing that the company chose, the price of 13 times my 2028 base is a fair price for a recovery that still has two years of proof to go.
What a 10x would take. Ten times $417.42 is $4,174 a share, about $501B of market value on today's share count, 1.4 times the $367B of UnitedHealth (calculated).11 At 15 times earnings that needs about $33B of net income, 8.8 times my 2028 base. At a 3% net margin it needs about $1.1T of revenue, 9 times the 2025 figure and 2.5 times what UnitedHealth, the largest US insurer, took in last year (calculated).11 A tenfold move in ten years is 26% a year. Humana itself is up 2.5 times in ten years. For a company this size a tenfold rise in a decade has almost never happened, and I see no route for it here. A rise of about half is possible: my bull is 1.5 times the price.
What they have to hit
Six numbers a reader can check. The thresholds come from my base case and agree with the signposts below.
| Indicator | Today | What the case needs | Where to track it | Next check |
|---|---|---|---|---|
| Insurance segment benefit ratio | 91.2% in Q2 and 90.3% in the first half of 2026; guide 92.75%, plus or minus 0.25, for the year93 | 2026 at or below 93.0%, then lower in 2027 (estimate) | Quarterly release, Insurance segment results table, line “Benefit ratio” | Q3 2026 results on 6 November 2026, where the company has guided “slightly above 94%”419 |
| Individual Medicare Advantage pre-tax margin | Guided slightly below breakeven for 2026; commitment of at least 3% in 202849 | About 0.8% in 2027 and 2.0% in 2028 in my base, 3.0% in the company’s (estimate) | Virtual investor update presentation and Q4 prepared remarks, “individual MA margin” lines | Investor update on 10 December 2026; Q4 results and 2027 guidance in February 20278 |
| Members in plans rated 4 stars or more | 95% for the 2027 ratings; about 20% for 2026 on the preliminary data710 | 90% or more held, and the quality bonus paid on them in 2028 (estimate) | CMS Star Ratings release and Humana’s 8-K that day, “percent of members” line | CMS Star Ratings in October 2027 for the 2029 payment year |
| CMS payment rate for 2028 | 2.48% for 2027, 4.98% with risk score trend, after a 0.09% proposal; unlinked chart review exclusion of 1.53%16 | 2.5% or more before risk score trend, with no new exclusions (estimate) | CMS advance notice and rate announcement fact sheets at cms.gov, “average payment change” line | Advance notice expected in January 2027; the 2027 one was published in January and finalized on 6 April 202616 |
| CenterWell income from operations | $755M in the first half of 2026; guide $1.3B to $1.8B3 | $1.55B in 2026 and about $2.0B in 2028 (estimate) | Quarterly release, CenterWell segment results table, “Income from operations” | Q3 2026 results on 6 November 2026; BlackRock joint venture closing in Q4 202615 |
| Debt to total capitalization | 42.7% at 30 June 2026; target about 40%3 | 40% or less by end 2027 (estimate) | Quarterly release, key financial data table, “Debt-to-total capitalization” | Q3 2026 results on 6 November 2026 |
Where I come down
What moved me: the 2026 profit is all CenterWell, so the insurer's recovery is still a promise, and the 2027 Star Ratings are real, with 95% of members in good plans, though they pay only from 2028. What did not move me: a price of 46 times a floor and 13 times my 2028 base, the company's 3% target, which I can't test until the bids it has filed for 2027 are paid, and a stock up 155% since March. What would raise my values: a 2027 guide at or above my base of about $19, a 10 December update that shows how it gets to 3%, and a 2028 CMS rate of at least 2.5% before risk scores.
Risks, and what would change my view
The ways this goes badly wrong are at the start of Valuation. These are the rest.
- Policy and rates. The 2028 advance notice comes in early 2027. CMS kept the 2024 risk model for 2027 and excluded unlinked chart review diagnoses, a 1.53 point effect, and it can do either again.16
- Audits and courts. CMS has selected Humana contracts for risk adjustment audits for payment years 2018 to 2021 and plans a rolling schedule. A court vacated the audit rule on 25 September 2025 and the government's appeal is pending at the Fifth Circuit; Humana's own challenge to the 2025 Star Ratings was rejected on 14 October 2025 and is also on appeal.6
- Cost trend. The company plans for a blended high single-digit trend, with medical at the higher end of mid-single digits and pharmacy in the low double digits. Pharmacy is a growing share of costs.43
- Concentration. Florida is 14% of revenue and 83% of revenue is federal.2
- Reserves. Days in claims payable fell to 33.1 and favorable prior-period development fell. A reserve shortfall would arrive as a charge in a later quarter.3
- Capital and clinics. The balance sheet is above its leverage target. The new BlackRock venture removes the put on the clinics but gives BlackRock return protections and a right to force a sale after 2033, and Humana may buy clinics from 2028.15
- Medicaid. The Texas and Georgia contracts face procurement challenges, and the company points to national Medicaid enrollment headwinds.94
- Timing. Third-quarter results arrive on 6 November 2026, two days after the price on this page. They could move the stock more than anything written here.41
What would change my view
Signals that move my values, in either direction.
| Signal | Today | Raises my value | Lowers my value |
|---|---|---|---|
| Full-year 2026 Insurance benefit ratio | Guide 92.75%, plus or minus 0.253 | At or below 92.5% | At or above 93.5% |
| 2027 adjusted EPS guide | No guide yet; my base is about $19 | $22 or more | $15 or less |
| The 2028 margin commitment | At least 3% for individual Medicare Advantage9 | Reaffirmed with a bridge, on 10 December | Reworded to “over time”, or cut below 2.5% |
| CMS 2028 headline rate | 2.48% for 2027, after a 0.09% proposal16 | 3.5% or more | 1% or less, or a new diagnosis exclusion |
| Debt to capital and ratings | 42.7%; BBB and Baa236 | 40% or less, with the ratings held | Above 45%, or a downgrade |
| Audit and court outcomes | Fifth Circuit appeals pending6 | The audit rule stays vacated | Extrapolated recoveries applied without the fee-for-service adjustment |
What would raise my base value: two quarters in which the Insurance benefit ratio comes in at or below the guide with the third-quarter loss no larger than the $1.00 guided. What would lower it: a 2027 guide near $15, a court or audit result that removes the fee-for-service adjustment, or a fourth-quarter loss much larger than the roughly $7.91 the guide implies.95
Sources
- 1HUM daily closes, Nasdaq.com historical API, 4 November 2016 to 4 November 2026 (opens in a new tab)
- 2Humana Form 10-K, year ended 31 December 2025 (opens in a new tab)
- 3Humana second quarter 2026 detailed earnings release and statistical pages (Exhibit 99.2 to 8-K) (opens in a new tab)
- 4Humana fourth quarter 2025 prepared management remarks (Exhibit 99.3 to 8-K) (opens in a new tab)
- 5Humana second quarter 2026 results and affirmed guidance (Exhibit 99.1 to 8-K) (opens in a new tab)
- 6Humana Form 10-Q, quarter ended 30 June 2026 (opens in a new tab)
- 7Humana Announces Improved CMS Star Ratings with 95 Percent of Medicare Advantage Members in 4-Star or Above Plans for 2027 (Business Wire release, copy on Finviz) (opens in a new tab)
- 8Humana Form 8-K, item 7.01, 2027 Star Ratings and guidance (opens in a new tab)
- 9Humana second quarter 2026 prepared management remarks (Exhibit 99.3 to 8-K) (opens in a new tab)
- 10Humana Form 8-K, item 7.01, preliminary 2026 Star Ratings (opens in a new tab)
- 11UNH, ELV, CI, CVS and YUM closes on 4 November 2026, Nasdaq.com historical API; FY2025 figures from SEC XBRL company facts (opens in a new tab)
- 12Humana definitive proxy statement for the 2026 annual meeting (opens in a new tab)
- 13Form 4, James A. Rechtin, open-market purchase of 6,530 shares at $229.2471, 16 May 2025 (opens in a new tab)
- 14SEC XBRL company facts, Humana Inc. (opens in a new tab)
- 15Humana Form 8-K, item 7.01, and Exhibit 99.1 press release on the BlackRock joint venture (opens in a new tab)
- 16CMS, 2027 Medicare Advantage and Part D Rate Announcement fact sheet (opens in a new tab)
- 17Humana fourth quarter and full-year 2023 earnings release (Exhibit 99.1 to 8-K) (opens in a new tab)
- 18Humana fourth quarter and full-year 2024 earnings release (Exhibit 99.1 to 8-K) (opens in a new tab)
- 19CVS Health third quarter 2026 results and raised guidance (Exhibit 99.1 to 8-K) (opens in a new tab)
- 20CVS Health announces intent to create two distinct leaders in healthcare (Exhibit 99.1 to 8-K) (opens in a new tab)
- 21Healthcare Dive, Medicare Advantage 2027 Star Ratings winners and losers (opens in a new tab)
- 22Humana Form 8-K, items 5.02 and 7.01, leadership changes (opens in a new tab)
- 23Humana Form 8-K, item 5.02, election of Robert S. Field as a director (opens in a new tab)
- 24Humana Form 8-K, item 5.02, election of Frederick J. Crawford and Paul J. Smith as directors (opens in a new tab)
- 25Form 4, Sanjay K. Shetty, open-market purchase of 810 shares at $185.205, 25 February 2026 (opens in a new tab)
- 26Dodge & Cox Form 13F-HR for 31 March 2026 (opens in a new tab)
- 27Dodge & Cox Form 13F-HR for 30 June 2026 (opens in a new tab)
- 28Humana fourth quarter and full-year 2016 detailed earnings release (Exhibit 99.2 to 8-K) (opens in a new tab)
- 29Humana fourth quarter and full-year 2020 detailed earnings release (Exhibit 99.2 to 8-K) (opens in a new tab)
- 30Humana fourth quarter and full-year 2022 detailed earnings release (Exhibit 99.2 to 8-K) (opens in a new tab)
- 31Humana fourth quarter and full-year 2024 detailed earnings release (Exhibit 99.2 to 8-K) (opens in a new tab)
- 32Humana fourth quarter and full-year 2017 detailed earnings release (Exhibit 99.2 to 8-K) (opens in a new tab)
- 33Humana fourth quarter and full-year 2018 detailed earnings release (Exhibit 99.2 to 8-K) (opens in a new tab)
- 34Humana fourth quarter and full-year 2019 earnings release (Exhibit 99.1 to 8-K) (opens in a new tab)
- 35Humana fourth quarter and full-year 2020 earnings release (Exhibit 99.1 to 8-K) (opens in a new tab)
- 36Humana fourth quarter and full-year 2021 earnings release (Exhibit 99.1 to 8-K) (opens in a new tab)
- 37Humana fourth quarter and full-year 2022 earnings release (Exhibit 99.1 to 8-K) (opens in a new tab)
- 38Humana first quarter 2026 prepared management remarks (Exhibit 99.3 to 8-K) (opens in a new tab)
- 39U.S. Treasury daily par yield curve rates, 2026 (opens in a new tab)
- 40Humana third quarter 2025 prepared management remarks (Exhibit 99.3 to 8-K) (opens in a new tab)
- 41Humana Inc. to Release Third Quarter 2026 Results on November 6, 2026 (Business Wire, copy on Finviz) (opens in a new tab)
How the figures are labelled
(reported)Reported: taken from a filing or a price feed, as printed.
(calculated)Calculated: arithmetic on reported figures, such as a margin or a growth rate.
(estimate)Estimate: my judgement, such as a case value or a growth assumption.
The price
Close in Q4 2026: $417.42, from Nasdaq, with the New York Stock Exchange as the listing venue, and cross-checked against the Yahoo Finance regular-session price [1]. Retrieved in Q4 2026, after the close. Market value uses 120.08M shares outstanding at 30 June 2026. Humana reports its third quarter on 6 November 2026, so this page uses the second quarter as the latest results [41].
I picked Humana because it was the largest public company in Kentucky by market value in October 2026: $50.1B at this close against $45.4B for Yum! Brands on the Nasdaq summary page [11]. It did not come from a screen for cheap shares. Calendar years end on 31 December, and adjusted EPS is the company's own measure.
The valuation
Discounted owner cash per share, 2027 to 2036, at a 9.5% discount rate, then growth of 2.5% for ever. Owner cash is adjusted income less $0.29B a year of transformation charges after tax and 7% of each year's added premiums kept as capital. Adjusted EPS for 2027 and 2028 comes from the segment bridge in Section VI, with growth after 2028 fading to 2.5% by 2036. Each year's cash is taken at the year end and valued at the end of 2026. No debt is deducted, because the cash is after interest. Yearly returns are the rate that equates the price to each case. The odds in Section VI are my guesses and are not used in the values, except that the weighted value of $395 uses 25%, 50% and 25%.
The margin-of-safety price is $263, 35% below my base value. No rating: the page states a range and the price, and leaves the decision to the reader.
Research, not investment advice. Figures as of .
Legal information and disclosures
These are my own views as of the update shown on this page. They can change without notice, and I have no duty to update them. Past performance does not indicate future results, and any investment can lose money.
This is for education only. It is not investment, legal, tax or accounting advice, and it is not an offer to sell or a solicitation to buy any security in any jurisdiction. It does not consider your goals or circumstances.
Figures from company filings and other third parties are believed to be reliable, but I have not independently verified them and cannot guarantee them. Bear, base and bull values, and anything marked as an estimate, are my own and rest on assumptions that may prove wrong.
Please do not copy or republish this material without my written consent.