Healthcare stocks UnitedHealth (NYSE: UNH) and Humana (HUM) are expected to see higher levels and offer similar returns in the next three years. Humana stock trades at 0.4x trailing revenues compared to 1.1x for UnitedHealth due to the latter’s superior profitability, financial position, and slightly better revenue growth. Historical revenue growth, returns, and valuation are compared in an interactive dashboard analysis of Humana vs. UnitedHealth to determine which stock is a better bet.
UNH stock has shown strong gains of 30% from early January 2021 to around $460 now, while HUM stock faced a notable decline of 25% over the same period. UNH underperformed the S&P in 2023, while HUM underperformed in 2021 and 2023. Consistently beating the S&P 500 has been challenging for individual stocks in recent years. Both UNH and HUM are expected to trend higher and offer similar returns in the next three years.
UnitedHealth’s revenue growth has been better, with a 13% average annual growth rate in the last three years compared to 11% for Humana. UnitedHealth’s revenue growth was primarily driven by the increased demand for its OptumHealth business. Humana’s top-line growth has been driven by individual Medicare Advantage membership growth and higher per-member medical premiums. Both companies are expected to see their revenue grow at a mid-single-digits average annual rate in the next three years.
UnitedHealth is more profitable than Humana, with a higher operating margin in 2023. UnitedHealth’s operating margin of 8.7% in 2023 aligns with the level seen in 2020, while Humana’s operating margin declined over this period. UnitedHealth also fares better in terms of financial risk, with a lower debt as a percentage of equity and a higher cash as a percentage of assets compared to Humana.
Based on valuation multiples, UnitedHealth has better revenue growth, profitability, and financial position than Humana. Both companies are expected to offer similar returns over the next three years. Humana’s stock currently trades at a lower multiple of revenues compared to its historical average, while UnitedHealth’s stock is slightly below its last five-year average. While HUM and UNH may offer similar returns in the next three years, it is essential to consider how UnitedHealth Group’s peers fare on metrics that matter.
