We initiate on HUM with a Strong Buy rating and a $341 price target. Humana Inc. is a diversified health and well-being company, offering medical and supplemental benefit plans to a network of over 17mn members in Medicare Advantage, Medicaid, and select commercial markets.
Under the guise of a mature healthcare operation, HUM approaches an earnings inflection where margin expansion and legislative timing effects converge. This convergence, in our view, has been overlooked due to regulatory concerns and The street consensus focus on 2024 headwinds.
Our analysis yields FY25E/FY26E EPS of $15.27/$18.41, respectively, vs. The street $14.51 for FY26E, driven by CenterWell and Medicaid mix and 7% organic growth. We see incremental $2.5/$1.5 per share tailwinds from new contract wins and operational cost synergies, allowing IRA smoothing and operating leverage to more-than-offset bear case on star bonus payments and RADV risk.
Our assigned 20.0x forward P/E multiple for FY25E reflects the blend of superior top-line growth and above peer margin potential, embedding both mean reversion and a prudent haircut for ongoing regulatory risk (10-K-based). As growth rates normalize in FY26E, a step-down to 18.5x keeps R/R balanced and maintains valuation support given HUM's unique exposure to both government reimbursement and durable network effects.
The ever-present regulatory risk is real, but our scenario work shows current market expectation is too pessimistic even under harsher assumptions. For investors looking for the rare large-cap payer where upside is tied to execution rather than rate-driven multiple expansion, HUM offers a differentiated opportunity with potential for significant outperformance.