Last week, Humana Inc. has announced the successful completion of its public offering of $1.35 billion in aggregate principal amount of senior notes. The offering includes $500 million of 5.750 percent senior notes due 2028 and $850 million of 5.950 percent senior notes due 2034. The net proceeds from the offering are estimated to be approximately $1.324 billion, which will be used for general corporate purposes, including the repayment of existing indebtedness. Barclay's Capital Inc., BofA Securities, Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, and Truist Securities, Inc., acted as active joint book-running managers for the offering.
In the words of a company spokesperson, "We are pleased to have completed this offering, which will provide us with additional flexibility and liquidity as we continue to pursue our strategic objectives."
Humana returned losses of -7.0% last year, with its stock price reaching a high of $558.04 and a low of $423.29. Over the same period, the stock underperformed the S&P 500 index by -19.0%. As of April 2023, the company's 50-day average price was $493.41. Humana Inc., together with its subsidiaries, operates as a health and well-being company in the United States. Based in Louisville, KY, the large-cap Health Care company has 67,100 full time employees. Humana has offered a 0.7% dividend yield over the last 12 months.
Growing Revenues With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $56,912 | $64,888 | $77,155 | $83,064 | $92,870 | $98,727 |
| Operating Margins | 5.0% | 5.0% | 6.0% | 4.0% | 4.0% | 5.0% |
| Net Margins | 3.0% | 4.0% | 4.0% | 4.0% | 3.0% | 3.0% |
| Net Income (MM) | $1,683 | $2,707 | $3,367 | $2,934 | $2,806 | $3,378 |
| Net Interest Expense (MM) | $218 | $506 | $283 | $532 | $401 | $443 |
| Depreciation & Amort. (MM) | $444 | $505 | $528 | $640 | $749 | $790 |
| Earnings Per Share | $12.16 | $20.1 | $25.31 | $22.67 | $22.08 | $26.84 |
| Diluted Shares (MM) | 138 | 135 | 133 | 129 | 127 | 123 |
| Free Cash Flow (MM) | $1,561 | $4,548 | $4,675 | $946 | $3,467 | $12,156 |
| Capital Expenditures (MM) | $612 | $736 | $964 | $1,316 | $1,120 | $1,033 |
| Net Current Assets (MM) | $1,696 | $2,851 | $2,400 | -$3,362 | -$1,502 | -$805 |
| Long Term Debt (MM) | $4,375 | $4,967 | $6,060 | $10,541 | $9,034 | $9,722 |
| Net Debt / EBITDA | 1.89 | 1.32 | 1.06 | 3.37 | 2.26 | -0.85 |
Humana has growing revenues and increasing reinvestment in the business and low leverage. Additionally, the company's financial statements display a strong EPS growth trend and generally positive cash flows. However, the firm has weak operating margins with a stable trend.
Humana's Valuation Is in Line With Its Sector Averages:
Humana has a trailing twelve month P/E ratio of 20.4, compared to an average of 24.45 for the Health Care sector. Based on its EPS guidance of $32.1, the company has a forward P/E ratio of 15.4. The company doesn't provide forward earnings guidance, and the compound average growth rate of its last 6 years of reported EPS is 14.1%. On this basis, Humana's PEG ratio is 1.45. Using instead the 9.4% weighted average of Humana's earnings CAGR and the broader market's anticipated 5-year EPS growth rate, the company's PEG ratio is 2.16, which suggests that its shares may be overpriced. In contrast, the market is likely undervaluing Humana in terms of its equity because its P/B ratio is 3.58 while the sector average is 4.16. The company's shares are currently trading 71.2% above their Graham number.
Humana Has an Analyst Consensus of Some Upside Potential:
The 19 analysts following Humana have set target prices ranging from $525.0 to $640.0 per share, for an average of $587.53 with a buy rating. As of April 2023, the company is trading -16.0% away from its average target price, indicating that there is an analyst consensus of some upside potential.
Humana has an average amount of shares sold short because 2.3% of the company's shares are sold short. Institutions own 95.6% of the company's shares, and the insider ownership rate stands at 0.17%, suggesting a small amount of insider investors. The largest shareholder is Vanguard Group Inc, whose 9% stake in the company is worth $5,550,315,320.
