With 5 million customers - representing almost 1/5 of the Medicare Advantage market – the group is number two behind UnitedHealth (1/4 of the market). Through organic growth and acquisitions, it intends to consolidate this position in a market that is expected to reach a population of 42 million seniors by 2030.

Humana is a "managed care organization" (MCO), i.e. an insurer that steers the healthcare pathway of its policyholders with a dual logic of economy and efficiency. The insurer claims 26% fewer avoidable hospitalizations and a national leadership position in home care (where a competitor like UnitedHealth has focused more on pharmacy), with a 6% market share. The number 2 in home care, Amedisys, is at 5%.

Its logic of ever more advanced integration involves, among other things, the development of the health center care offer. This is a sector that is expected to grow by 50% between 2021 and 2025, in which Humana is of course present with its CenterWell franchise. Deployment is rapid - 206 centers in 2021 vs. 400-450 expected in 2025 - and management plans to amortize the cost of launching a center in less than four years. This new business is expected to contribute $6bn in revenue by 2025.

15% annualized growth

It has just published its results, delivering $25 in EPS in 2022. In its earnings report, management said that 2023 individual Medicare Advantage (MA) membership growth expected to be at least 625,000 for the year, a year-over-year increase of 13.7 percent. "This robust membership outlook reflects high quality growth, with our improvement in retention more than doubling expectations, and marks a continuation of our strong track record of membership growth, with our compounded annual growth from 2018 to 2022 at 10.4 percent as compared to industry growth of 9.7 percent.", it said.

The group beat Wall Street estimates for quarterly profit thanks to soaring investment income, despite posting higher-than-expected medical costs.

Its benefit expense ratio, which is the percentage of payout on claims related to its premiums, dropped by 1 percentage point in Q4 to 87.5%, which was better than analysts' expectations.

Its guidance called for adjusted earnings per share of at least $28 in 2023, and Humana has set a goal of reaching $37 per share in three years. This roadmap implies 15% annualized growth and $5 billion dedicated to share buybacks. Notably, management intends to slow down on acquisitions and increase returns to shareholders.

These objectives are in line with the group's historical performance, which has quadrupled its earnings per share over the last decade 2011-2021, from $8 to $24, while recording a return on equity that would make other insurers jealous.

This financial performance is reflected in the share price, which increased tenfold over the period. However, the $485 share price only represents a multiple of x13 the expected profit in two to three years. In this respect, the situation is clear: if management delivers a performance over the next decade comparable to the previous one, the situation is not lacking in appeal.

On the risk side, however, there is the potential for slower growth, as Medicare Advantage penetration is now much more advanced than it was a decade ago. There is also increased competition - especially from non-profit players - and a shifting legislative environment. Since Humana is the private linchpin of a public social security program, the federal government naturally has a say in the behavior of the various stakeholders....