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Centene vs. Anthem: Which is a Better-Positioned Stock?
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Although most industries suffered massively from the COVID-19 outbreak, the health insurance industry has so far had a minimal impact from the same.
In fact, the pandemic provided some relief to insurers’ Medical Loss Ratio (MLR), which is the ratio of premiums spent on claims. With maximum hospitals postponing the elective procedures and surgeries, it positively impacted the MLR of health insurers in the form of lower claim outgo. Thus, a decline in the MLR is expected to continue aiding insurers’ margins.
The industry players are well-poised for growth owing to rising enrolment, increasing contribution from complementary businesses, product modifications, improved services, expansion of international operations, better claims handling, medical cost management, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.
The health insurance industry remains a promising platform for investment on the back of solid demand for value-based health plans, higher number of baby boomers and better health outcomes through the usage of analytics, AI and other advanced technologies.
Given the current scenario and the buoyancy in demand for telemedicine in behavioral health, we expect many health insurers to gain traction from this business line. Some of the companies, such as Anthem Inc. witnessed a significant surge in telehealth visits.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of companies with strong business fundamentals. The Zacks HMO industry carries a Zacks Industry Rank within the top 13% (34 of 252).
Against this backdrop, let’s look at the two leading health insurers, namely Centene Corporation (CNC - Free Report) and Anthem with their respective market capitalization of $35.5 billion and $70.8 billion. Each stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past six months, Anthem and Centene have gained 4.5% and 10.6%, respectively. The industry has rallied 7.6% in the same time frame compared with the S&P 500 Index’s 8.4% increase.
Other companies in the same space, such as Humana Inc. (HUM - Free Report) and Molina Healthcare, Inc. (MOH - Free Report) have gained 20.7% and 45.3% in the same time frame.
Now let's analyze certain other parameters to find out which company is better placed.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Anthem’s bottom line managed to beat estimates in two of the trailing four quarters, missing the same in the other two, the average negative surprise being 1.02%. Notably, Centene’s earnings surpassed the consensus mark in one of the trailing four quarters, falling short of the same in the remaining three, the average miss being 4.10%.
While both companies have a negative earnings surprise, Anthem has an edge over Centene here.
Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
Anthem’s ROE of 19.44% compares favorably with Centene’s ROE of 14.1%.
Valuation
Price-to-earnings value is one of the multiples used for valuing health insurers. Comparing favorably with the health insurance industry’s forward 12-month P/E ratio of 15.61, both Anthem and Centene are undervalued with a reading of 11.50 and 11.22 each. However, Centene has a better reading than that of Anthem.
Earnings Guidance
Earnings growth along with stock price gains is often indicative of a company’s strong prospects.
The Zacks Consensus Estimate for Anthem’s 2020 earnings implies a 15.3% rise from the year-ago reported figure while that of Centene suggests an increase of 10.2% from the prior-year reported number.
Here Anthem has a marginal edge over Centene in terms of yearly earnings growth.
Debt-to-Equity
Both companies have higher debt-to-equity ratio than the industry average of 61.8X. However, Anthem’s leverage ratio of 62.3X betters Centene’s ratio of 66.8X. Therefore, Anthem is at an advantage over Centene on this front.
Bottom Line
Our comparative analysis shows that Anthem is better-positioned than Centene with respect to earnings surprise, return on equity and earnings growth. Meanwhile, Centene scores higher in terms of leverage ratio and valuation. As the scale is slightly tilted toward Anthem, the stock discernibly makes a more promising investment proposition.
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Centene vs. Anthem: Which is a Better-Positioned Stock?
Although most industries suffered massively from the COVID-19 outbreak, the health insurance industry has so far had a minimal impact from the same.
In fact, the pandemic provided some relief to insurers’ Medical Loss Ratio (MLR), which is the ratio of premiums spent on claims. With maximum hospitals postponing the elective procedures and surgeries, it positively impacted the MLR of health insurers in the form of lower claim outgo. Thus, a decline in the MLR is expected to continue aiding insurers’ margins.
The industry players are well-poised for growth owing to rising enrolment, increasing contribution from complementary businesses, product modifications, improved services, expansion of international operations, better claims handling, medical cost management, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.
The health insurance industry remains a promising platform for investment on the back of solid demand for value-based health plans, higher number of baby boomers and better health outcomes through the usage of analytics, AI and other advanced technologies.
Given the current scenario and the buoyancy in demand for telemedicine in behavioral health, we expect many health insurers to gain traction from this business line. Some of the companies, such as Anthem Inc. witnessed a significant surge in telehealth visits.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of companies with strong business fundamentals. The Zacks HMO industry carries a Zacks Industry Rank within the top 13% (34 of 252).
Against this backdrop, let’s look at the two leading health insurers, namely Centene Corporation (CNC - Free Report) and Anthem with their respective market capitalization of $35.5 billion and $70.8 billion. Each stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past six months, Anthem and Centene have gained 4.5% and 10.6%, respectively. The industry has rallied 7.6% in the same time frame compared with the S&P 500 Index’s 8.4% increase.
Other companies in the same space, such as Humana Inc. (HUM - Free Report) and Molina Healthcare, Inc. (MOH - Free Report) have gained 20.7% and 45.3% in the same time frame.
Now let's analyze certain other parameters to find out which company is better placed.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Anthem’s bottom line managed to beat estimates in two of the trailing four quarters, missing the same in the other two, the average negative surprise being 1.02%. Notably, Centene’s earnings surpassed the consensus mark in one of the trailing four quarters, falling short of the same in the remaining three, the average miss being 4.10%.
While both companies have a negative earnings surprise, Anthem has an edge over Centene here.
Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
Anthem’s ROE of 19.44% compares favorably with Centene’s ROE of 14.1%.
Valuation
Price-to-earnings value is one of the multiples used for valuing health insurers. Comparing favorably with the health insurance industry’s forward 12-month P/E ratio of 15.61, both Anthem and Centene are undervalued with a reading of 11.50 and 11.22 each. However, Centene has a better reading than that of Anthem.
Earnings Guidance
Earnings growth along with stock price gains is often indicative of a company’s strong prospects.
The Zacks Consensus Estimate for Anthem’s 2020 earnings implies a 15.3% rise from the year-ago reported figure while that of Centene suggests an increase of 10.2% from the prior-year reported number.
Here Anthem has a marginal edge over Centene in terms of yearly earnings growth.
Debt-to-Equity
Both companies have higher debt-to-equity ratio than the industry average of 61.8X. However, Anthem’s leverage ratio of 62.3X betters Centene’s ratio of 66.8X. Therefore, Anthem is at an advantage over Centene on this front.
Bottom Line
Our comparative analysis shows that Anthem is better-positioned than Centene with respect to earnings surprise, return on equity and earnings growth. Meanwhile, Centene scores higher in terms of leverage ratio and valuation. As the scale is slightly tilted toward Anthem, the stock discernibly makes a more promising investment proposition.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>