The views expressed below are those of Anchor Capital Advisors, LLC (‘‘Anchor’’) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.
MSCI ESG Rating: A
Humana is one of the largest private health insurers in the US with a focus on administering Medicare Advantage plans. The firm has built a niche specializing in government-sponsored programs, with nearly all its medical membership stemming from individual and group Medicare Advantage, Medicaid, and the military’s Tricare program. Founded in 1961, the company is headquartered in Louisville. KY. 
Humana benefits from significant moat in an industry that is growing at a very healthy rate. The number of new boomers to join Medicare has a CAGR of 3.2% through 2030 and as a % the Medicare Advantage (MA) market is increasing its penetration levels of Medicare. 
Humana has a strong network effect. It is an established leader in Medicare holding the strong number 2 market position in Medicare Advantage with 18% market share. United Health (UNH) is the market leader with 26% share. As of December 2020, HUM had 17 million members in their medical plans and 5 million in specialty product plans. 83% of total premiums and services revenues were derived from contracts with the government. 
We believe that MA market is growing at a high single digit growth rate and Humana is growing membership in-line with the growth in the market. Humana looks likely to benefit from strong demographic trends and could even benefit from a potential public option, if private insurers are allowed to participate through Medicare Advantage-like plans.
Besides strong industry trends, Humana has also done a good job reducing its overall costs. It has broadened its health care physician network and services, to provide a holistic look to the consumer. This effort allows it to offer a competitive benefit plan, but also, to manage and reduce costs.
Confirmation through Research
Humana delivered strong results in the first quarter of the year 2021, with results that were better than consensus expectations. Medicare Advantage membership grew by 12% when compared to the last year and Medicaid membership grew by 36%. Adjusted revenue grew by 10% and company reported strong EPS of $7.67 vs. consensus of $7.07. Management expects its individual MA membership to grow by 10-12% in 2021 and EPS growth in mid-teens. 
We believe Humana is very well positioned to continue to gain market share in its core Medicare Advantage market but also use this position to grow business in the Medicaid side as well. As a result, we expect HUM to grow revenue in high single digits and earnings to grow double digits over the medium term. We believe that the current valuation is very attractive for a company with such a strong moat and above market growth rates.
In order to enhance current and prospective investor understanding of our process, approach and views, the highlighted investment summary has been selected to illustrate Anchor’s investment approach and/or market outlook. It has not been selected based on performance-related criteria. This investment summary represents a recent investment made and the strategy described may change in the future. Various portfolios actively managed by Anchor may or may not contain this security. Ultimate portfolio design recommendations will be based on in-depth analysis and considerations of factors specific to each client, including risk tolerances, liquidity parameters, return expectations, etc.
The views expressed are those of Anchor Capital Advisors, LLC (“Anchor”) as of the date written and are subject to change at any time. Anchor does not undertake any obligation to update the information contained herein as of any future date.
Certain information (including any forward-looking statements and economic and market information) has been obtained from sources we deem reliable, but is not guaranteed by Anchor, nor is it a complete summary of available data.
The information should not be considered investment advice or a recommendation to buy or to sell the security mentioned. These opinions are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that investments in such securities have been or will be profitable.
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