Humana (HUM) Oct 2024 Valuation Model and Risk Framework
Humana (HUM) Oct 2024 Valuation Model and Risk Framework
This Humana (HUM) valuation model includes a DCF valuation, company comparable relative value matrix, financial forecasts, segment breakdown, and detailed operating model. Assumptions can easily be adjusted by the user.
The business is currently facing a revaluation because of a change in Medicare Advantage star rating related bid margin and bonus payments, that could change drastically by 2026 without an appeal. The company has $83/share in net cash and is currently pricing in >75% chance that the appeal fails, which is likely too high in our opinion.
Business:
Humana is a leading health and well-being company serving 17 million members in its medical benefit plans, as well as approximately five million members in its specialty products. Its range of clinical capabilities, resources and tools, such as in-home care, behavioral health, pharmacy services, data analytics, and wellness solutions, combine to produce a simplified experience that makes health care easier to navigate and more effective.
Additionally, Humana provides health insurance coverage under Centers for Medicare and Medicaid Services (CMS) contracts to approximately 5.4 million individual Medicare Advantage members, including approximately 851,300 members in Florida. It also provides its members with access through their networks of health care providers such outpatient surgery centers, primary care providers, specialist physicians, dentists, and providers of ancillary health care services.
Operations
Humana operates through two segments: Insurance and CenterWell.
The Insurance segment accounts for about 85% of the company's total revenue and comprised of products serving Medicare and state-based contract beneficiaries sold on a retail basis to individuals including medical and supplemental benefit plans. This segment also includes products consisting of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and life insurance benefits, as well as administrative services only, or ASO. In addition, its Insurance segment includes its military services business as well as the operations of its PBM business.
The CenterWell segment generates the remaining revenue and includes our pharmacy solutions, primary care, and home solutions operations. The CenterWell segment also includes its strategic partnerships with Welsh, Carson, Anderson & Stowe, or WCAS, to develop and operate senior-focused, payor-agnostic, primary care centers, as well as its minority ownership interest in hospice operations. Services offered by this segment are designed to enhance the overall healthcare experience.
Overall, about 95% of Humana's total revenue comes from premiums and the remaining some 5% comes from services.
Geographic Reach
In addition to the headquarters in Louisville, Kentucky, Humana maintains other principal operating facilities used for customer service, enrollment, and/or claims processing and certain other corporate functions in Louisville, Kentucky; Green Bay, Wisconsin; Tampa, Florida; Cincinnati, Ohio; San Antonio, Texas; San Juan, Puerto Rico; and Austin, Texas. The company operates medical centers in Florida and Texas.
Sales and Marketing
Humana markets its products through television, radio, the Internet, telemarketing, and direct mailings. It employs about 1,500 sales representatives, as well as approximately 2,500 telemarketing representatives to sell its products. Additionally, the company markets its individual Medicare products through an alliance with Walmart. Humana uses licensed independent brokers, independent agents, digital insurance agencies, and employees to sell its group products.
The company derives around 85% of its total premiums and services revenue from contracts with the federal government, including some 15% derives from individual Medicare Advantage contracts in Florida with the Centers for Medicare and Medicaid Services, or CMS, under which the company provides health insurance coverage to approximately 851,300 members.
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