Humana Inc.HUMNYSE

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DCF Valuation

⚠️Model Warnings

•Terminal value represents 90% of enterprise value. Valuation highly sensitive to long-term assumptions.

DCF Valuation Summary

Strong Buy

Fair Value: $4,702.50 per share(market-calibrated)

+2489.8%

Upside to Fair Value

Current

$181.58

Pure Model

$5,438.87

Fair Value

$4,702.50

Bull Case

$7,046.28

Bear Case

$4,144.45

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $5,438.87.

What's Driving This Ratingfor HUM

✓

CapEx already efficient

CapEx at 0.71% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 3.17% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $34.4B (14.49% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 22.01% in Year 1 to 3.50% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 77.03% indicates efficient cash generation. FCF reaches $27.7B by Year 10 (11.66% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.44

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.48%

Cost of Debt

Pre-tax Cost of Debt4.06%

Tax Rate17.21%

After-tax Cost of Debt3.36%

Equity Weight (E/V)63.88%

Debt Weight (D/V)36.12%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (63.88% × 6.48%) + (36.12% × 3.36%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$158.2B	$183.3B	$202.9B	$216.7B	$237.5B
EBIT	$5.0B	$5.8B	$6.4B	$20.0B	$34.4B
Tax	$864M	$1.0B	$1.1B	$3.4B	$5.9B
NOPAT	$4.2B	$4.8B	$5.3B	$16.6B	$28.5B
+ Depreciation	$1.0B	$1.2B	$1.3B	$1.4B	$1.5B
- Capex	$1.1B	$1.3B	$1.4B	$1.5B	$1.7B
- Δ NWC	$2.7B	$1.3B	$645M	$651M	$650M
Free Cash Flow	$1.4B	$3.4B	$4.6B	$15.8B	$27.7B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$1.3B	$2.9B	$3.5B	$10.9B	$16.2B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$27.7B

Terminal Growth Rate3.00%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$1.1T

PV of Terminal Value$668.0B

Exit Multiple Method

Year 10 EBITDA$36.0B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$862.9B

PV of Terminal Value$505.2B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$76.7B

PV of Terminal Value$668.0B

Enterprise Value$744.7B

(-) Net Debt$8.2B

Equity Value$736.6B

Shares Outstanding120M

Price per Share$6,114.94

Exit Multiple Method

PV of Projected FCFs$76.7B

PV of Terminal Value$505.2B

Enterprise Value$581.9B

(-) Net Debt$8.2B

Equity Value$573.7B

Shares Outstanding120M

Price per Share$4,762.81

Pure Model Fair Value

$5,438.87

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
3.50%	$7,021.76	$6,716.40	$6,425.72	$6,148.95	$5,885.34
4.50%	$5,942.78	$6,716.40	$6,425.72	$6,148.95	$5,885.34
5.50%	$4,627.36	$4,965.49	$5,438.87	$6,148.95	$5,885.34
6.50%	$3,822.35	$4,003.53	$4,236.49	$4,547.09	$4,981.94
7.50%	$3,258.88	$3,367.90	$3,501.16	$3,667.73	$3,881.89

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$4,144.45

2182.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.55

Base Case

$5,438.87

2895.3% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.44

Bull Case

$7,046.28

3780.5% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.37

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth22.01%

Year 3 Revenue Growth8.31%

Year 5 Revenue Growth3.50%

Year 7 Revenue Growth3.30%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin3.17%

Terminal EBIT Margin20.00%

Tax Rate17.21%

Historical Capex / Rev0.71%

NWC / Revenue9.40%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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