In our last blog, we left off with the recent announcement that Walmart (WMT) was looking to acquire Humana (HUM) teasing that this combination could be different.
Over the last year, we have frequently discussed what combination of merging companies we thought were not going to work, for example, our series on “Silicon Valley and Healthcare.” The series broke down what Silicon Valley companies could or could not do in healthcare.
I also wrote about the announcement that Amazon, Berkshire and J.P. Morgan Chase (JPM) were going to partner to impact healthcare in an undefined way. Furthermore, I discussed an innovative free market approach that Disney was experimenting with in Orlando, Florida.
However, the potential union of Walmart and Humana is totally different. As noted in last week’s blog, my fascination with Walmart’s use of technology and my business history with Humana in Florida. Today, Humana owns the company I founded that grew with Humana to over $100 million (USD) in revenues and to profitability. Recently, Humana announced that they were going to merge five medical facility operations into one new company (including the company I founded).
That is significant as Humana owns hundreds of fully-operational wellness centers staffed with top-of-the-line primary care doctors and specialists providing care primarily to Medicare and Medicaid members. Humana is a great company that provides excellent care, that I know from all angles, not only providing care to over 25,000 of their members, but also to my own father who was a member of Humana for over a decade before his natural death.
Let me share a known fact about the reason behind why I think Walmart is amazingly smart in doing a merger with Humana:
Revenues (USD) $ $500 billion
Profit Margin 2.06%
PE Ratio 26X
Return on Equity 12.4%
Revenues (USD) $53 billion
Profit Margin 4.08%
PE Ratio 16.07
Return on Equity 25.15%
The first blush numbers clearly show that this acquisition is going to be a major profit driver for Walmart. Also of major interest, Medicare announced a few days ago that they will increase top line revenue for Medicare managed care providers by 3.45% for 2019, and they project that Medicare Advantage member growth is likely to grow by 9% in 2019.
Let’s think about that for a moment, Humana, a major Medicare Advantage player, is guaranteed 3.4% revenue increase, plus a natural growth rate of 9%. What other industry do you have that guarantee? Also, understanding that any cost savings Humana can make, and they try very hard, goes directly to the bottom line. It is a great time to acquire Humana.
I will remind you of what I wrote previously, “we see the technology-driven transformation curve in healthcare over the last five years has clearly accelerated and that acceleration is driven by the two master trends: technology in general, and the power that consumerization of information has caused.”
In our next blog, we will talk about what a merger of Walmart and Humana would look like, what role technology would play, and why I think it has tremendous potential.
-Noel J. Guillama, President