Humana (HUM, Financial) is a leader and near pure-play in the fastest growing sector of managed care, Medicare Advantage. Each year, more seniors choose Medicare Advantage over traditional Medicare due to the compelling combination of lower costs and expanded benefits. Humana’s scale advantages and focus on senior care allow the company to make targeted investments in its members’ health, resulting in fewer unnecessary hospitalizations and lower chronic care costs. Much of these savings are then reinvested in the health plan, resulting in a continuously improving customer value proposition. The company’s brand also resonates well in the marketplace and has helped drive double-digit annual membership growth over the past decade–well above the rest of the industry. Further, we believe Humana has a long runway ahead as it benefits from an aging population and continued conversion of the more than 60% of seniors who are still enrolled in traditional Medicare. Yet Humana’s shares are currently trading at a discount to the S&P 500 earnings multiple, which we believe doesn’t give the company enough credit for its durable competitive advantages and strong secular growth outlook.
From Bill Nygren (Trades, Portfolio)'s third-quarter 2019 Oakmark Fund shareholder letter.
