Better Buy for 2022: Humana vs. Clover Health

With the increasing medical needs of an aging population, the health insurance industry is expected to keep growing. Moreover, the continued digitization and attractive insurance plans should contribute to the health insurance market’s growth in the near future. Therefore, both Humana (HUM) and Clover Health Investments (CLOV)  should benefit.

HUM operates as a health and well-being company. The company offers medical and supplemental benefit plans to individuals. CLOV operates as a medicare advantage insurer. Through its Clover Assistant, the company provides preferred provider organization and health maintenance organization, health plans for medicare-eligible consumers.

HUM has gained 6.4% over the past year, while CLOV has negative returns. But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On February 2, 2022, Bruce D. Broussard, HUM’s President, and CEO, said, “We expect that improved membership growth, further penetration in our growing and maturing Healthcare Services businesses, and our increased focus on productivity improvements will position us to deliver on our long-term earnings target in 2023 and beyond."

On January 10, 2022, CLOV announced Medicare Advantage membership growth of over 25% versus the beginning of 2021, outpacing the overall industry growth average of approximately 10% year-over-year. Andrew Toy, CLOV’s President, said, “We believe our dramatic growth in Georgia demonstrates how the model we honed in New Jersey is replicable in more states and look forward to further establishing Clover’s MA presence in key markets this year.”

Recent Financial Results

HUM’s adjusted revenue increased 10.9% year-over-year to $21.20 billion for the fiscal fourth quarter ended December 31, 2021. The company’s adjusted pre-tax income came in at $166 million compared to a loss of $498 million in the prior-year quarter. Also, its adjusted EPS came in at $1.24 compared to a loss of $2.30 in the year-ago period.

CLOV’s revenues grew 152.6% year-over-year to $427.20 million for the fiscal third quarter ended September 30, 2021. However, its adjusted EBITDA loss increased 411.5% year-over-year to $102.30 million. Also, its net loss came in at $34.50 million compared to an income of $12.80 million in the prior-year quarter.

Past and Expected Financial Performance

Analysts expect HUM’s revenue to increase 12.5% for the quarter ending March 31, 2022, and 10.8% in fiscal 2022. The company’s EPS is expected to decline 11.2% for the quarter ending March 31, 2022, but grow 16.5% in fiscal 2022. Moreover, its EPS is expected to grow at a rate of 14.3% per annum over the next five years.

On the other hand, CLOV’s revenue is expected to increase 206.2% for the quarter ending March 31, 2022, and 80.9% in fiscal 2022. Its EPS is expected to decline 76.9% for the quarter ending March 31, 2022, but grow 23.7% in fiscal 2022. The company’s EPS is expected to grow at a rate of 18% per annum over the next five years.

Profitability

HUM’s trailing-12-month revenue of $82.20 billion is significantly higher than CLOV’s $1.16 billion. HUM is also more profitable with a gross profit margin and net income margin of 17.31% and 3.25%, respectively, compared to CLOV’s negative returns.

Furthermore, HUM’s ROE, ROA, and ROTC of 16.68%, 4.96%, and 9.21% compared with CLOV’s negative values.

Valuation

In terms of trailing-12-month P/S, CLOV is currently trading at 0.67x, higher than HUM’s 0.63x. Moreover, CLOV’s trailing-12-month EV/S ratio of 0.99x is 39.4% higher than HUM’s 0.71x.

So, HUM is relatively affordable here.

POWR Ratings

HUM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, CLOV has an overall rating of F, which translates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

HUM has a grade of C for Quality. This is justified given HUM's 0.50% trailing-12-month levered FCF margin, 340.2% higher than the industry average of 0.11%. On the other hand, CLOV has a Quality grade of D, in sync with its negative trailing-12-month levered FCF margin, compared to the industry average of 0.11%.

HUM also has a C grade for Growth and Sentiment, consistent with analysts’ expectations that its EPS will increase in the current year. On the other hand, CLOV has a D grade for Growth and Sentiment, in sync with analysts’ expectations that its EPS will remain negative in the current year.

HUM is ranked first of the 29 stocks in the Insurance - Life industry. However, CLOV is ranked last out of 11 stocks in the Medical - Health Insurance industry.

Beyond what I’ve stated above, we have also rated the stocks for Momentum, Stability, and Value. Click here to view all the HUM ratings. Also, get all the CLOV ratings here.

The Winner

The health insurance industry is expected to grow with the rising healthcare needs of an aging population and growth in health expenditure. However, it is better to bet on HUM now because of its lower valuation, higher profitability, and solid growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Insurance - Life industry here. Also, click here to access all the top-rated stocks in the Medical - Health Insurance industry.

HUM shares were trading at $432.34 per share on Friday afternoon, up $6.13 (+1.44%). Year-to-date, HUM has declined -6.80%, versus a -4.86% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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