Humana 2025-26: MA +25% Growth, $9 EPS Floor, $3.5B STARS Drag
FY25 revenue $129.7B (+10%); op income $1.45B (-11%); NI $1.19B (-1.6%); EPS $9.84. AEP +1M MA members (20%); retention +500bp. Anticipate FY26 individual MA membership +25%. STARS net headwind ~$3.5B FY26 (net of mitigation). FY26 guide: adj EPS at least $9. Strategic primary care acquisition planned. Medicaid: 13 states (Georgia + Texas launching 2026).
Key takeaways
- AEP membership growth +1M (+20%) — surprising upside. Retention rate improved 500+bp YoY. 70% of new sales switchers from competitor plans (vs typical bounce-back-heavy pattern); 70% in 4 stars or better. The brand pull is real.
- STARS headwind $3.5B FY26 net of mitigation. This is the bear case: net STARS impact across individual + group MA, partially offset by contract diversification + provider deals. Confidence in returning to top quartile by 2028.
- FY26 individual MA pretax margin doubles (normalized for STARS). The underlying margin trajectory is improving — STARS is the stand-alone overlay drag, not operational deterioration. Membership growth + cost productivity = expanding underlying margin.
- CenterWell pharmacy + primary care compounding. Q4 saw growth in pharmacy (DTC volume + specialty); FY26 PCO patient growth + home health volume up on membership. "Strategic primary care acquisition" announced for 2026 — material capital deployment.
- FY26 EPS floor at $9 — set conservatively. Mgmt explicit that 2026 initial guide is more conservative than typical due to dynamic environment. The implication: meaningful upside if STARS mitigation lands.
Business
Humana Inc. is a US health insurance + healthcare services company with two reportable segments + a leading Medicare Advantage franchise:
- Insurance (~85% of revenue). Medicare Advantage (individual + group), Medicaid, Tricare. FY25 benefit ratio 90.4% (slightly better than guide). FY26 individual MA +25% growth expected. Medicaid: 13 states (Georgia + Texas launching 2026).
- CenterWell (~15%). Pharmacy + primary care + home health. Pharmacy outperforming year-to-date with higher DTC volume + favorable specialty pharmacy. PCO (Primary Care Organization) patient growth tied to MA membership. Home health volumes growing.
Strategic moves FY25:
- AEP +1M members / +20%; retention +500bp
- 30 new primary care centers (Q1)
- Selected for new Illinois Medicaid contracts (Q1)
- Refiled STARS lawsuit (Q2)
- Genpact partnership + agentic AI platform announced (Q3)
- Selling non-core assets (capital efficiency)
- Days in claims payable optimization
- Hoping to announce strategic primary care acquisition (Q4)
FY25 financial performance
| Metric (FY) | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Revenue ($B) | 92.92 | 106.44 | 117.81 | 129.66 |
| Revenue YoY | n/a | +15% | +11% | +10% |
| Op income ($B) | 3.56 | 3.32 | 1.63 | 1.45 |
| Op margin | 3.8% | 3.1% | 1.4% | 1.1% |
| Net income ($B) | 2.81 | 2.49 | 1.21 | 1.19 |
| Diluted EPS ($) | 22.08 | 20.00 | 9.98 | 9.84 |
| FCF ($B) | 3.45 | 2.98 | 2.39 | 0.38 |
| Capex ($M) | -1,137 | -1,004 | -575 | -546 |
| Total debt ($B) | 11.75 | 12.27 | 12.26 | 12.94 |
| Dividends ($M) | -392 | -431 | -431 | -430 |
| Buyback ($M) | -2,096 | -1,573 | -817 | -151 |
The earnings progression: revenue compounding +10-15% per year (membership + rate); op income compressed to $1.45B (vs $3.56B FY22) — reflecting MA reimbursement headwinds + STARS impact + integration. EPS $9.84 vs $22.08 FY22 (-55% from peak).
FY25 FCF $375M (-84%) reflects working capital + benefit cost timing. Stark vs FY22 $3.45B FCF — the model has compressed materially.
Buybacks dialed down to $-151M FY25 (vs $-2.1B FY22) — prudent capital deployment ahead of strategic primary care acquisition.
Capital allocation
- Capex: $-546M FY25 (~0.4% of revenue, light asset model).
- Dividends: $-430M FY25 (flat YoY); ~$3.93/share annual.
- Buybacks: $-151M FY25 (vs $-817M FY24, -82%). No additional buybacks planned beyond Q2 buyback.
- M&A: Hoping to announce strategic primary care acquisition (Q4 statement).
- Debt: $12.94B (+5% YoY).
- FCF: $375M (-84%).
The capital allocation pivot is clear: minimize buybacks, build cash for primary care acquisition, capital efficiency through asset sales.
FY26 outlook (per Q4 2025 call, 2026-02-11)
| FY26 framework | Detail |
|---|---|
| Adjusted EPS | At least $9 |
| Individual MA membership growth | ~25% |
| MA pretax margin (normalized for STARS) | Double FY25 |
| STARS net headwind | ~$3.5B (net of mitigation) |
| Operating cost ratio | Significant improvement |
| Medicaid spans | 13 states (Georgia + Texas launching) |
| STARS recovery | Top quartile by 2028 |
The "at least $9" floor is conservative given dynamic environment; mgmt has historically beat conservative initial guides. STARS recovery to 2028 is the multi-year overhang.
Key risks
- STARS lawsuit / 2026 ratings. Refiled lawsuit Q2 2025; outcome unknown. STARS is the dominant FY26 EPS driver.
- MA reimbursement / IRA / Doc Fix. Medicare Advantage reimbursement environment + Doc Fix implementation timing affects guidance.
- Membership concentration. AEP +25% individual MA = membership concentration on growth. Disenrollment / utilization volatility.
- Acquisition integration. Primary care acquisition introduces integration + revenue ramp risk.
- Operational leverage. Backoffice transformation (Genpact + agentic AI) — execution dependent.
- Tariff regime / cost of care. Medical cost inflation continues; mitigation through clinical care management.
Bottom line
HUM FY25 is the AEP +1M / FY26 +25% MA growth + STARS reset year. Underlying MA pretax margin doubling (normalized for STARS) shows operational improvement; STARS is the standalone overlay drag at $3.5B net headwind. FY26 EPS floor of $9 is conservative; meaningful upside on STARS mitigation outcome. Strategic primary care acquisition coming. Risks are STARS + lawsuit + reimbursement + acquisition. Quality MA franchise mid-multi-year recovery / re-rating cycle.
Citations
- Humana Inc. FY25 Form 10-K (filed February 2026, SEC EDGAR).
- HUM Q4 2025 earnings call, 2026-02-11 — AEP +1M MA members (+20%); retention +500bp; FY26 individual MA +25% growth; FY26 adj EPS at least $9; STARS net headwind ~$3.5B; primary care acquisition planned.
- HUM Q3 2025 earnings call, 2025-11-05 — FY EPS outlook $17 reaffirmed; selling non-core assets; M&A in primary care.
- HUM Q2 2025 earnings call, 2025-07-30 — FY EPS raised $16.25 → $17; membership decline 500K (vs 550K guide); STARS lawsuit refiled.
- HUM Q1 2025 earnings call, 2025-04-30 — 30 new primary care centers; Medicaid 100K growth; FY EPS $16.25 reaffirmed.
- Internal financial_statements view (consolidated annual + cash flow + capital structure).