Humana: Reduces Near-Term Outlook on Increasing Medical Utilization and Weak MA Trends

Narrow-moat Humana gave a preliminary look at 2023-24 operating metrics that was weaker than we anticipated on increasing medical utilization and a tougher landscape for adding new Medicare Advantage, or MA, members in 2024, which compressed both the industry's (3%) and Humana's MA membership growth (2% for individuals) for 2024. Even when adjusting for this weaker near-term outlook, we do not expect Humana's $550 fair value estimate to change materially, considering cash flows likely generated since our last valuation update in early 2023. Overall, we think long-term investors should consider declining shares as an even bigger opportunity to invest in this top-tier managed-care organization, or MCO, which was trading at a nearly 20% discount to fair value prior to this news.