Humana (HUM)

Health insurance company Humana (NYSE:HUM) announced better-than-expected revenue in Q3 CY2025, with sales up 11.4% year on year to $32.65 billion. The company expects the full year’s revenue to be around $128 billion, close to analysts’ estimates. Its GAAP profit of $1.62 per share was 43.4% below analysts’ consensus estimates.

Company Overview

With over 80% of its revenue derived from federal government contracts, Humana (NYSE:HUM) provides health insurance plans and healthcare services to approximately 17 million members, with a strong focus on Medicare Advantage plans for seniors.

Upfront premiums collected by health insurers lead to reliable revenue, but profitability ultimately depends on accurate risk assessments and the ability to control medical costs. Health insurers are also highly sensitive to regulatory changes and economic conditions such as unemployment. Going forward, the industry faces tailwinds from an aging population, increasing demand for personalized healthcare services, and advancements in data analytics to improve cost management. However, continued regulatory scrutiny on pricing practices, the potential for government-led reforms such as expanded public healthcare options, and inflation in medical costs could add volatility to margins. One big debate among investors is the long-term impact of AI and whether it will help underwriting, fraud detection, and claims processing or whether it may wade into ethical grey areas like reinforcing biases and widening disparities in medical care.

Humana's main competitors include UnitedHealth Group (NYSE: UNH), CVS Health's Aetna (NYSE: CVS), Cigna Group (NYSE: CI), Elevance Health (formerly Anthem) (NYSE: ELV), and Centene Corporation (NYSE: CNC). In the Medicare Advantage space specifically, UnitedHealth's UnitedHealthcare and CVS Health's Aetna are Humana's strongest competitors.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $126.3 billion in revenue over the past 12 months, Humana is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Humana grew its sales at a decent 11.4% compounded annual growth rate. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Humana’s annualized revenue growth of 12.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

We can dig further into the company’s revenue dynamics by analyzing its number of customers, which reached 14.99 million in the latest quarter. Over the last two years, Humana’s customer base averaged 4.7% year-on-year declines. Because this number is lower than its revenue growth, we can see the average customer spent more money each year on the company’s products and services.

This quarter, Humana reported year-on-year revenue growth of 11.4%, and its $32.65 billion of revenue exceeded Wall Street’s estimates by 2.1%.

Looking ahead, sell-side analysts expect revenue to grow 6.7% over the next 12 months, a deceleration versus the last two years. We still think its growth trajectory is satisfactory given its scale and suggests the market is baking in success for its products and services.

Humana was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.3% was weak for a healthcare business.

Analyzing the trend in its profitability, Humana’s operating margin decreased by 1 percentage points over the last five years. This performance was caused by more recent speed bumps as the company’s margin fell by 2.2 percentage points on a two-year basis. We still like Humana but would like to see it make some adjustments.

This quarter, Humana generated an operating margin profit margin of 1.2%, down 1.3 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Humana, its EPS declined by 19.3% annually over the last five years while its revenue grew by 11.4%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Humana’s earnings can give us a better understanding of its performance. As we mentioned earlier, Humana’s operating margin declined by 1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Humana reported EPS of $1.62, down from $3.97 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Humana’s full-year EPS of $10.66 to grow 28.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Humana has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.4%, subpar for a healthcare business.

Humana’s free cash flow clocked in at $836 million in Q3, equivalent to a 2.6% margin. The company’s cash profitability regressed as it was 3.3 percentage points lower than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Humana’s five-year average ROIC was 35%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Humana’s ROIC has decreased over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Humana is a profitable, well-capitalized company with $22.12 billion of cash and $12.61 billion of debt on its balance sheet. This $9.52 billion net cash position is 28.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Humana beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed and its customer base fell slightly short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $281.87 immediately after reporting.

Updated: December 4, 2025 at 10:52 PM EST

When considering an investment in Humana, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

There are definitely a lot of things to like about Humana. First off, its revenue growth was good over the last five years, and analysts believe it can continue growing at these levels. And while its declining EPS over the last five years makes it a less attractive asset to the public markets, its scale gives it meaningful leverage when negotiating reimbursement rates. On top of that, its stellar ROIC suggests it has been a well-run company historically.

Humana’s P/E ratio based on the next 12 months is 19.1x. When scanning the healthcare space, Humana trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $286.63 on the company (compared to the current share price of $252.86), implying they see 13.4% upside in buying Humana in the short term.