DCF Studio

    HUM · NYQ · Healthcare

    Humana Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 574.25

    Market price

    USD 386.22

    Implied upside

    +48.7%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.77% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 574.25+48.7%
    Exit multiple
    USD 818.60+112.0%
    Market price
    USD 386.22

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn5bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 144.9bnUSD 162.0bnUSD 181.0bnUSD 202.3bnUSD 226.1bn+11.8%
    EBITUSD 4.2bnUSD 4.7bnUSD 5.3bnUSD 5.9bnUSD 6.6bn+11.8%
    NOPATUSD 3.3bnUSD 3.7bnUSD 4.2bnUSD 4.6bnUSD 5.2bn+11.8%
    Add depreciation & amortisationUSD 1.2bnUSD 1.3bnUSD 1.5bnUSD 1.6bnUSD 1.8bn+11.8%
    Less capital expenditureUSD -1.4bnUSD -1.6bnUSD -1.8bnUSD -2.0bnUSD -2.3bn+11.8%
    Less increase in working capitalUSD 91.5mUSD 102.3mUSD 114.3mUSD 127.8mUSD 142.8m-11.8%
    Free cashflow to firmUSD 3.1bnUSD 3.5bnUSD 3.9bnUSD 4.4bnUSD 4.9bn+11.8%
    Discount factor0.96040.88580.81710.75360.6951-
    Present valueUSD 3.0bnUSD 3.1bnUSD 3.2bnUSD 3.3bnUSD 3.4bn+3.1%
    Present Value Of The ForecastUSD 16.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.829Reported 0.745, pulled toward 1.0 (Blume)
    Cost of equity9.56%Risk-free + beta x equity risk premium
    Cost of debt5.24%Interest expense / average total debt
    Market capitalisationUSD 46.4bn78.9% of capital
    Total debtUSD 12.4bn21.1% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.42%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 574.25

    74% of EV

    Forecast FCFF, final year
    USD 4.9bn
    Capex at depreciation, working capital in reinvestment
    USD 5.3bn
    Less reinvestment at g/ROIC (28.3% of NOPAT)
    USD -1.5bn
    Capitalised
    USD 3.8bn
    ROIC (reported)
    8.8%
    Terminal value, undiscounted
    USD 65.9bn
    Terminal value, discounted
    USD 45.8bn
    Enterprise value
    USD 61.9bn
    Less net debt
    USD -7.5bn
    Equity value
    USD 69.4bn

    Exit at 12.9x EBITDA

    Value per shareUSD 818.60

    82% of EV

    Terminal value, undiscounted
    USD 108.4bn
    Terminal value, discounted
    USD 75.3bn
    Enterprise value
    USD 91.4bn
    Less net debt
    USD -7.5bn
    Equity value
    USD 98.9bn

    Spread between methods: 35%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.42%770.52794.63824.42862.38912.70
    7.42%651.56661.90673.98688.39706.02
    8.42%567.00570.48574.25578.40583.04
    9.42%507.77509.32510.88512.43513.99
    10.42%463.05464.40465.75467.10468.45

    Outlined: this model. Green text: above today's price of 386.22. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year11.8%1.0%-10.8pp
    EBIT margin2.9%1.8%-1.1pp
    Discount rate8.4%12.8%+4.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.