“A map is not the territory it represents, but, if correct, it has a similar structure to the territory, which accounts for its usefulness.”- Alfred Korzybski

We’ve all been there. It’s late, you’re four tabs deep into an Excel model, and the numbers finally “click.” The assumptions line up, the valuation looks clean, and the expected return is screaming…

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In my recent deep dive, I framed Humana as a “great business under pressure”, a company benefiting from a structurally growing Medicare Advantage market but struggling to translate that growth into attractive unit economics.

The Q1 2026 results don’t change that view. If anything, they make the tradeoff more explicit. Humana is still growing, but that growth is no longer the priority.

Bigger, But Not Better (Yet)

On the surface, the quarter looks strong. Revenue grew 23% year-over-year to $39.65 billion, driven by continued enrollment gains in Medicare Advantage.

But just below the surface, the pressure shows up quickly. Adjusted EPS declined 11% to $10.31. EBIT fell 13% to $1.75 billion. The insurance segment benefit ratio (MLR) came in at 89.4% for the quarter, with full-year guidance holding at an elevated 92.75%.

This is the core tension: the business is scaling, but the economics are tightening.

The Problem Hasn’t Changed

The underlying issue remains straightforward. Medical cost trends are running hot.

Humana is still adding members at an impressive pace, management reaffirmed ~25% individual MA membership growth for 2026. But the incremental economics of that growth are weaker than they’ve been historically.

A Clear Strategic Pivot

The most important moment of the earnings call wasn’t in the financials, it was in how management framed the future.

CEO Jim Rechtin outlined the company’s bidding priorities for 2027 (~16:50 minutes in):

1. Return to a sustainable margin of at least 3% by 2028

2. Retention

3. Growth, a “distant third priority”

For years, the Humana playbook was simple: grow membership, leverage scale, and expand margins over time. Now, the company is effectively reversing that logic. Growth is no longer the engine—it’s the variable being managed.

This is less about pulling back, and more about resetting the foundation.

CenterWell: The Lever That Has to Work

If there is a path back to margin expansion, it likely runs through CenterWell.

The strategy is straightforward: bring more care delivery in-house to better control costs, improve outcomes, and capture a greater share of the value chain.

Q1 showed tangible progress.

CenterWell Senior Primary Care added over 110,000 patients sequentially, driven by both organic growth and the MaxHealth acquisition. The home health segment also expanded its value-based care footprint, now reaching an additional 2 million patients.

This is still early, but it’s directionally consistent with the long-term thesis.

What Matters From Here

Management reaffirmed full-year EPS guidance of at least $9.00, but the next 12–24 months won’t be defined by earnings growth. They’ll be defined by discipline.

• Pricing;

• Benefit design;

• Retention;

• And whether CenterWell can help curb Humana’s MLR in a meaningful way.

The Real Question

The investment case for Humana hasn’t disappeared, it’s just shifted. This is no longer a story about how fast the business can grow. It’s about whether the underlying economics can be reset. If they can, the earnings power of the business looks meaningfully higher than what’s reflected today. If they can’t, scale becomes less of an advantage, and more of a burden.

For now, management is focused on the right problem. The question is whether the solution will follow.

NOTE - This is not investment advice. Do your own due diligence.

I make no representation, warranty, or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information presented in this report. Assumptions, opinions, and estimates expressed in this report constitute my judgment as of the date thereof and are subject to change without notice. Projections are based on a number of assumptions, and there is no guarantee that they will be achieved. K9 Investment Research is not acting as your advisor or in any fiduciary capacity.

K9 Investment Research

Healthcare consultant by trade and investor focused on long-term value creation. I write fundamental deep dives on business quality, unit economics, and valuation.

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ServiceNow (NOW) has compounded revenue at ~20% for over a decade, with best-in-class retention and steadily expanding margins. By any traditional SaaS metric, NOW is a high-quality compounder.

And yet, following its Q1 2026 earnings—where the company beat expectations and raised full-year subscription guidance to ~$15.7 billion (~21% constant currency growth)—the stock sold off sharply, now down more than 40% year-to-date.

At the center of the selloff is a simple but critical question:

Does AI break the SaaS seat model—or does it make orchestration platforms like ServiceNow more valuable?

If AI compresses seat-based pricing, the economics of the model change. If it expands the value of orchestrating work across the enterprise, ServiceNow may be better positioned than ever.

The Business

While companies like Salesforce and Workday function as “systems of record” (massive databases storing customer or employee information), ServiceNow operates as a system of action. It sits above a company’s fragmented software stack, acting as the connective tissue that coordinates how work actually gets done.

The example/workflow below illustrates the point. Hiring a new employee isn’t a single action, it’s a sequence:

• IT provisions a laptop and software licenses

• HR sets up payroll and benefits

• Security grants badge access and network permissions

Without an orchestration layer, this process becomes a mess of emails, Slack messages, and manual handoffs, a slow, expensive drain on enterprise productivity. Each step lives in a different silo. ServiceNow stitches them together, using automated integrations to ensure tasks move across departments without friction.

This positioning, sitting between systems rather than competing with them, is what makes the model so powerful.

To understand why this is increasingly important (and defensible in an AI world), it helps to frame ServiceNow within the enterprise data stack.

The lower layers (compute, storage, even AI reasoning) are rapidly commoditizing as inference costs collapse. But ServiceNow has anchored itself at the very top of the stack:

• Layer 6: Action & Orchestration — triggering workflows across hundreds of systems

• Layer 7: Governance & Identity — permissions, audit trails, compliance logic

This is where the real leverage sits. An AI model can tell you how to provision a laptop. But it doesn’t know who has budget approval in the Berlin office, which cost center to charge, or what security clearance is required. That context built over years of configuration, policy, and usage—is embedded inside ServiceNow; that’s the moat.

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“With an expanded total addressable market of $225 billion, we have significant runway for growth... Tractor Supply has never been stronger and the next five years are going to be very exciting.” – Hal Lawton (President and CEO)

Founded in 1938 as a mail-order catalog for tractor parts, Tractor Supply Company has grown into the largest rural lifestyle retailer in the United States, with more than 2,600 stores across 49 states.

What began as a niche supplier to farmers has evolved into a retailer serving a broad and growing base of customers living what the company calls the “Out Here” lifestyle.

Over the past several decades, that positioning has translated into remarkable consistency. Tractor Supply has delivered more than 30 consecutive years of revenue growth, reaching approximately $15.5 billion in sales in 2025.

A Rural Distribution Engine, Not a Retailer

Tractor Supply is a rural lifestyle retailer serving customers in small towns and communities outside major metropolitan areas.

Its core customer includes recreational farmers, ranchers, tradesmen, and pet owners living what the company calls the “Out Here” lifestyle. These customers have practical, recurring needs, ranging from livestock feed and pet food to fencing, tools, and hardware.

While it appears to be a traditional retailer, the business is better understood as a specialized distribution system. The company operates a purpose-built supply chain, including 11 distribution centers and dedicated mixing and import facilities, designed to efficiently move bulky, high-volume, and needs-based consumable goods.

Revenue is generated through the sale of physical goods across its store base and digital channels, with sales diversified across key categories including livestock and agriculture, companion animals, seasonal and outdoor products, tools and hardware, and apparel.

From Cyclical Retail to Recurring Demand Engine

The durability of Tractor Supply’s business is not an accident, it is the result of a deliberate shift in what the company sells.

Over the past decade, Tractor Supply has steadily reoriented its product mix away from cyclical, discretionary categories like hardware and tools, and toward highly recurring, needs-based consumables. That shift is the single most important reason the model has become more resilient over time.

The clearest example is the rise of animal-related categories. In 2011, livestock and pet products accounted for roughly 40% of total sales. By 2015, that figure had increased to 44%, and by 2022 it reached 50%. Today, under the company’s updated reporting structure, those categories represent approximately 51% of revenue, split between livestock and agriculture (27%) and companion animals (24%).

This matters because these products behave differently than traditional retail. Livestock feed, pet food, and other consumables are not discretionary, they are replenishment items. Customers do not delay these purchases. As a result, these categories drive consistent traffic, predictable revenue, and a level of demand stability that most retailers do not have.

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“A lot of things that looked like moats were actually just incumbent inertia...those moats turn out to be made of sand. They were never moats; they were just lack of better options.”- Chamath Palihapitiya

Investors love the word “moat” because it implies safety. It’s a clean, intuitive concept that promises certainty in an uncertain market. But most perceived moats are far more fragile than the pitch decks suggest.

Great Products vs. Great Businesses

A common mistake I have seen—and experienced—in investing is assuming that a product you love equals a business that’s protected. Investors tend to mistake our own positive user experience for a durable competitive advantage.

But a moat isn’t about being “good”, it’s about being defensible.

To find the real moat, an investor must look past the UI and ask the uncomfortable questions: How sustainable is this demand? Does the company have the power to raise prices without losing customers? How easily can a well-funded competitor clone this tomorrow? If you don’t have a solid answer, you don’t have a moat; you just have a popular product.

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business.” – Warren Buffett

Why the Old Playbook is Breaking

Historically, moats were identified by looking at return on capital. It was math-heavy and reliable. But in an era of software and “intangible” assets, that framework appears to be cracking (see the recent drop on SaaS business as an example).

Code, data, and networks don’t always sit neatly on a balance sheet. This creates a visibility problem: the numbers might look great while the underlying economics are rotting. Modern moat analysis is less about solving a formula and more about understanding the “plumbing” of how a business captures value.

The PayPal Lesson: When Scale Isn’t Enough

PayPal is the ultimate cautionary tale for “moat erosion.” On paper, the narrative was bulletproof: 400 million users, massive merchant adoption, and high conversion rates.

And yet, the fortress crumbled because PayPal was built for a browser-based world. When commerce shifted from “clicking a button” to “tapping a phone,” PayPal hit a brick wall: the hardware.

Because Apple and Google own the operating systems, they control access to the NFC chip—the tiny antenna that makes “Tap to Pay” possible. While Apple Pay integrated seamlessly into the physical world, PayPal was relegated to being a “browser-only” solution. For the consumer, the choice became binary: use the wallet that works everywhere or use the one that only works on half of those. By being locked out of the hardware layer, PayPal didn’t just lose a feature—it lost the battle for the consumer’s primary wallet.

That single technical constraint didn’t just slow them down; it fundamentally broke their advantage in the most valuable part of the payment ecosystem.

Adobe: The Muscle Memory Trap

Adobe is another example of how a “habit-based” moat can suddenly come under attack. For decades, Adobe’s dominance wasn’t just about software: it was about muscle memory. If you were a creative professional, you spent years mastering the complex menus and keyboard shortcuts of Photoshop and Illustrator. That investment created a massive switching cost; leaving Adobe meant learning a new language.

And yet, the walls are thinning. Why? Because Adobe was built for a world of manual craft. When the industry shifted toward AI, the “interface” began to collapse from a thousand precise clicks into a single text prompt.

As AI tools allow users to “describe” an image rather than “build” one, the years of expertise required to navigate Adobe’s ecosystem are being commoditized. Adobe is now forced to integrate these same AI tools just to stay relevant, but in doing so, they are effectively dismantling their own barrier to entry. That shift in how we create didn’t just introduce new competition, it threatened to erase the “expert” advantage that kept professionals locked in for thirty years.

Stop Overrating Network Effects

“Network effects” has become the one of the most overused buzzword in the industry, Because it was so successful in explaining the rise of companies like Facebook, it started to be used everywhere, even in companies that just had “scale” but no real defensibility (It reminds me of the ‘SoLoMo’ (Social-Local-Mobile) craze of 2011—a catchy acronym that convinced investors that apps with lots of users automatically had a business model).

It was effectively a mental shortcut for “this company is a winner.” But not all networks are created equal.

In PayPal’s case, the network stayed huge, but the value per user tanked as better alternatives emerged. If a network doesn’t move the needle on user experience every single day, it’s not a moat. It’s just scale. And scale without defensibility is just a big target for competitors.

The Infrastructure Advantage

On the flip side, look at Visa and Mastercard. They’ve faced decades of regulation, lawsuits, and “disruptive” fintech startups, yet their position is as strong as ever.

Their secret? They aren’t just a network; they are infrastructure. They are the global central nervous system for money. Replacing a social network is hard; replacing the literal pipes that connect every bank on the planet is nearly impossible. That is what true durability looks like.

The Bottom Line

A moat isn’t a snapshot of what a business looks like today. It’s a prediction of what a business can defend ten years from now.

Real moats require structural advantages, things like high switching costs or specialized infrastructure, rather than just being the “coolest” brand in the category. Popularity is temporary; structure is (more) permanent.

At the end of the day, investing is about closing the gap between the story and the reality. Don’t only ask if a company is growing fast. Ask: What breaks this? What happens when the environment shifts? If the business only works when things stay exactly as they are, you likely aren’t looking at a moat.

NOTE - This is not investment advice. Do your own due diligence.

I make no representation, warranty, or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information presented in this report. Assumptions, opinions, and estimates expressed in this report constitute my judgment as of the date thereof and are subject to change without notice. Projections are based on a number of assumptions, and there is no guarantee that they will be achieved. K9 Investment Research is not acting as your advisor or in any fiduciary capacity.

K9 Investment Research

Healthcare consultant by trade and investor focused on long-term value creation. I write fundamental deep dives on business quality, unit economics, and valuation.

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The output is a set of frameworks, analyses, and perspectives that can be used within your own investment decision. What you do with that work (e.g. portfolio construction, timing, position sizing) is left to the individual.

A Long-Term Lens

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”- Benjamin Graham

Markets are noisy in the short term. Prices move on sentiment, positioning, and information that often has little to do with the long-term trajectory of a business.

Over shorter time horizons, outcomes are frequently shaped by speed and access—advantages that are difficult to replicate as an individual investor. Trying to compete on that axis tends to turn analysis into reaction.

Instead, the work here is grounded in a longer horizon:

• What does this business look like in five or ten years?

• What are the structural drivers of growth?

• What will determine whether it succeeds or fails?

This perspective forces a focus on fundamentals rather than headlines and creates a clearer link between business performance and valuation over time.

The Core Question

Each write-up is built around a simple question: What is this business, and how does it make money over time?

That requires breaking the company down into its underlying components—how it generates revenue, how it allocates capital, and how those decisions translate into long-term earning power.

Quarterly results matter, but only to the extent that they inform the direction of the underlying business. The focus is not on whether a company beat expectations, but on whether the engine itself is strengthening or weakening.

Defining Quality

Not all growth is valuable. Not all businesses are worth owning.

The companies that tend to warrant deeper attention often exhibit a combination of:

• Durable competitive advantages that support excess returns

• The ability to reinvest capital at attractive rates

• Exposure to markets with structural tailwinds

• Management teams that allocate capital rationally over time

These are often described as “high-quality” businesses, but that label only matters if it can be grounded in financial reality. A key part of the work is translating qualitative strengths into measurable outcomes.

At the same time, not every write-up will be about a business that meets this standard. Understanding lower-quality or more uncertain businesses is often just as valuable—both for comparison and for recognizing when a thesis begins to change.

Valuation: Framing the Debate

What you’ll notice in these write-ups is a focus on isolating the core drivers of long-term value creation, rather than trying to out-forecast near-term earnings with precision. The objective isn’t to predict next year’s EPS better than the Street, but to build a grounded view of what a business can earn on a normalized, per-share basis over time, and then compare that to the valuation implied today.

While I do provide an estimated price, the focus is less on precision and more on understanding the assumptions required to justify the current valuation.

A constant check in that process is avoiding false precision. Models can create the illusion of certainty, but if the conclusions are driven more by the mechanics than by the underlying business, the analysis loses its value. And importantly, even the highest-quality business is not necessarily a good investment. The difference ultimately comes down to valuation.

The approach here is centered on estimating the long-term earning power of a business and comparing that to the price implied by the market. But the goal is not precision for its own sake.

Valuation is used to frame three questions:

• What assumptions are embedded in the current price?

• What needs to go right—or wrong—from here?

• Is there a meaningful gap between price and intrinsic value?

One important shift in my thinking has been recognizing the role of upside in great businesses. When a company has a long runway and can compound capital at attractive rates, the distribution of outcomes is often skewed. Walking away on valuation alone can mean foregoing that asymmetry.

In that sense, valuation is not a rigid decision rule. It is a way of understanding risk, opportunity, and the range of possible outcomes.

Independent Thinking

Consensus is often comfortable. It is also frequently wrong at the margins that matter.

The purpose of this research is not to echo prevailing narratives, but to test them. That requires a willingness to diverge from market expectations when the underlying analysis supports it.

Sometimes that leads to agreement with the market. Sometimes it doesn’t. Both outcomes are acceptable. The goal is not differentiation for its own sake, but intellectual honesty.

Closing Thought

At its core, this work is about narrowing the gap between perception and reality.

The market sets the price. The task is determining whether that price reflects the underlying business. When that gap can be identified consistently—and approached with discipline over time—the results tend to follow.

NOTE - This is not investment advice. Do your own due diligence.

I make no representation, warranty, or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information presented in this report. Assumptions, opinions, and estimates expressed in this report constitute my judgment as of the date thereof and are subject to change without notice. Projections are based on a number of assumptions, and there is no guarantee that they will be achieved. K9 Investment Research is not acting as your advisor or in any fiduciary capacity.

K9 Investment Research

Healthcare consultant by trade and investor focused on long-term value creation. I write fundamental deep dives on business quality, unit economics, and valuation.

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That changed following its 2021 IPO. What had historically been a regional concept began evolving into a national expansion story, with management increasing its long-term store opportunity from ~4,000 locations to more than 7,000. In the nearer term, the company is targeting ~2,000 shops by 2029, effectively doubling its current footprint.

Today, Dutch Bros operates ~1,100+ locations across 25 states, with a footprint that remains heavily concentrated in its core markets, roughly 40% of stores are located in Texas and California. Expansion has been both dense and directional: the company continues to “fortress” existing markets by opening new units near high-performing locations to increase throughput, while simultaneously pushing into newer regions, particularly across the Southeast.

The result is a business in transition, from a regional brand built on culture to a national operator defined by execution.

While Dutch Bros began franchising in 2000, the system that exists today looks very different from what one might expect of a traditional franchise model. Over time, management made a series of deliberate decisions that reshaped not just how the company grows, but who is allowed to grow with it.

The first inflection point came in 2008. As the footprint expanded, co-founder Travis Boersma identified a problem that does not show up neatly in a financial model: many external franchisees, despite being well-capitalized, lacked what the company calls “Dutch Luv”—the high-energy, community-driven culture that defines the brand at the store level. Rather than optimize for faster unit growth, management chose to protect the culture. From that point forward, new franchisees were required to have at least three years of experience within the system, effectively introducing a cultural filter into the growth equation.

Nearly a decade later, the company took that logic to its natural conclusion. In 2017, Dutch Bros eliminated franchising altogether—even for internal candidates—and shifted to a fully company-owned model. Today, roughly ~71% of stores are company-operated, and all future growth will follow the same path.

What began as a franchise system has gradually evolved into something closer to a vertically controlled operating model, one where consistency, culture, and execution are prioritized over the capital-light appeal of franchising.

To understand Dutch Bros, it helps to start with what it is not.

Unlike incumbents such as Starbucks, which built their identity around the “Third Place” coffeehouse experience, Dutch Bros has become something quite different: a drive-thru beverage concept optimized for a different customer and a different occasion.

At its core, the brand is heavily skewed toward younger consumers. Roughly ~65% of its customer base falls within the 18–34 age range, which matters not just because of the concentration, but because of what it implies about the nature of demand. These consumers are not necessarily approaching beverages as a daily ritual in the traditional sense; increasingly, they are treating them as a form of expression, something closer to “edible entertainment” than a simple cup of coffee. That distinction shows up clearly in the mix: nearly ~90% of transactions are cold beverages, often highly customized, visually oriented, and designed to be shared, both physically and digitally.

This also helps explain the company’s product strategy. Offerings like its proprietary energy drink line are less about replacing the morning coffee and more about capturing incremental occasions, particularly the afternoon pick-me-up. Dutch Bros is not really competing head-on for the 7:30 AM commuter. It is building a business around the 2:30 PM consumer.

That positioning is reinforced by where (and how) the company operates. Rather than targeting dense urban centers, Dutch Bros has leaned into suburban markets, typically in middle- to upper-middle-income corridors. The model is built around convenience: small-format, drive-thru-centric locations designed for speed and throughput, not dwell time. The customer is often already in their car, and the visit is inherently transactional, whether that is a parent with kids in the backseat or someone making a quick stop between errands. In that context, the absence of a traditional coffeehouse environment is not a weakness. It is the point.

One of the more underappreciated aspects of the model is day-part mix. While legacy competitors derive the bulk of their volume in the morning hours, Dutch Bros generates the majority of its revenue after 10:00 AM. The visit is less about necessity and more about indulgence—a small, repeatable treat that typically falls in the $5–$8 range.

That distinction matters. In periods of consumer pressure, this type of affordable luxury often proves more resilient than higher-ticket discretionary spend. Customers may delay larger purchases, but they are less likely to give up the daily—or weekly—reward.

One of the clearest differences between Dutch Bros and Starbucks shows up in something as simple as when customers show up. At first glance, that might seem like a minor detail. In reality, it speaks to a deeper difference in how consumers perceive each brand. For Dutch Bros, the business is increasingly anchored around energy, not coffee. Products like Blue Rebel and the broader Refresher lineup are built for the afternoon occasion, the moment when consumers are looking for a second wind, not their first. As a result, traffic builds throughout the day, with peak demand often occurring in the mid-to-late afternoon as students leave school and workers look for a pick-me-up. By contrast, Starbucks remains tethered to its core identity: coffee. And coffee, by its nature, is tied to routine. The demand curve follows a fairly predictable pattern, heavy in the early morning hours, tapering as the day progresses, aligned with the rhythm of consumers seeking their first dose of caffeine.

Starbucks captures the habit. Dutch Bros is capturing the craving.

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“If you rewound five or seven years ago, we were largely a heal

th insurance company. I mean, that is largely what Humana was. When you look at what we are today, even though it is not visible all the time, we are much more a health services company.” – Jim Rechtin (Humana CEO)

That comment, in my view, gets to the heart of the Humana story.

For most inves…

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