Humana Inc (HUM)

Conclusion

Humana is a US health insurer, best known for Medicare Advantage plans. Its CenterWell segment runs senior-focused primary care centres and home health services. At a price of 423.22 USD on 9 November 2026, the market capitalisation is 50.82 billion USD.

The verdict is overvalued. The P/E of 40.8 compares with a ten-year median of 19.1, and the price to free cash flow of 68.0 compares with a median of 16.9. The fair value band runs from 228.33 to 342.50 USD, with a midpoint of 285.42 USD and a margin of safety of -32.6% at the current price. The discounted cash flow gives 111.04 USD per share at a discount rate of 8.87%, and the fair value from historical multiples is 459.79 USD. The reverse DCF implies growth of 26.7% a year, while revenue grew 10.9% a year over five years and earnings per share fell 17.2% a year over the same period.

What holds the case up: net debt to EBITDA of -3.89, which means a net cash position, an Altman Z-score of 4.71, and a return on invested capital of 32.9% against a WACC of 8.1%. What would break it: interest coverage of 3.29, free cash flow conversion of 60.0% over the trailing twelve months, and an operating margin of 1.3% against a ten-year median of 3.7%.

Financial health

The colour is green: the Altman Z-score, net debt to EBITDA and the current ratio hold it up, while interest coverage is only neutral. The current ratio is 1.65 and the quick ratio 1.16 at 30 September 2026. Net debt to EBITDA is -3.89 on a trailing basis, and debt to equity is 0.66. Interest coverage of 3.29 is assessed neutral. The Altman Z-score is 4.71, in the safe zone, but the Altman model was designed for manufacturers, so it is only an approximation for an insurer. Insolvency risk is low, about 0.96% by the estimate of the Ohlson model over one to two years.

Earnings quality

The colour is green: five-year cash conversion, the Beneish reading and the share count trend hold it up. Free cash flow conversion is 60.0% on a trailing basis but 95.6% over five years. The accrual ratio is 0.56%. Stock-based compensation is 0.15% of revenue, and free cash flow after it is 516 million USD. The share count fell 1.9% a year over five years, which points to buybacks. The Piotroski score is 5 of 9, assessed neutral. The Beneish M-score is -2.20, which reads as unlikely manipulation. Earnings beat expectations in seven of the last eight quarters, with an average surprise of 10.9%. Estimates for the current year rose 2.3% over 90 days, and estimates for next year rose 6.6%.

Profitability

The colour is yellow: return on capital is strong, but margins sit well below their medians. The gross margin is 13.0% against a median of 17.1%, the operating margin 1.3% against 3.7%, and the net margin 0.8% against 3.0%. Margin stability is 0.43. Return on invested capital is 32.9% against a WACC of 8.1%, a given ROIC minus WACC value of 24.8%, and its five-year median is 12.0%. Return on equity is only 6.6%. The DuPont split for 2025 shows a net margin of 0.92%, an asset turnover of 2.66 and an equity multiplier of 2.76. Leverage does not inflate the return on equity; thin margins hold it down.

Growth

The colour is yellow: revenue growth is good, but per-share earnings and free cash flow are falling. Revenue compound growth is 11.8% over three years, 10.9% over five and 9.1% over ten. Revenue grew in nine of ten comparable years. Earnings per share compound at -23.6% over three years, -17.2% over five and 1.5% over ten. Free cash flow per share compounds at -51.5% over three years, -38.5% over five and 3.1% over ten. Analysts expect next-year earnings per share to grow 86.6%, but that rebound is an estimate, not a delivered result.

Valuation

The colour is red: the valuation is assessed bad, and the verdict is overvalued. The P/E of 40.8 is 114.2% above its ten-year median of 19.1. Price to free cash flow of 68.0 is 303.1% above its median of 16.9. EV to EBITDA of 11.8 is a 10.3% discount to its median of 13.2, price to sales of 0.33 is a 49.6% discount to 0.65, and price to book of 2.70 is a 23.8% discount to 3.54. The DCF gives 111.04 USD with a discount rate of 8.87%, and 59.3% of its value sits in the terminal value. The reverse DCF implies 26.7% growth. The fair value band of 228.33 to 342.50 USD is an order-of-magnitude estimate built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The dividend yield is 0.84%, and the payout on free cash flow is 57.4%.

Risks

Interest coverage of 3.29 leaves limited room: a fall in operating earnings would reduce the cushion against interest costs faster than the net cash position offsets it. The operating margin of 1.3% is thin, so small cost pressure would remove most of the profit. Earnings per share have fallen 17.2% a year over five years, and free cash flow conversion of 60.0% on a trailing basis is well below the five-year level. The valuation depends on earnings recovering, since price to free cash flow stands at 68.0. This analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the mix between Insurance and CenterWell cannot be checked.