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Here's Why Hold Strategy is Apt for Centene (CNC) Stock

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Centene Corporation (CNC - Free Report) is well-poised for growth on the back of its strategic measures and 2021 outlook.

The company’s earnings beat estimates twice in the trailing four quarters and missed the same in the remaining two. It has a trailing four-quarter earnings surprise of 4.34%, on average.

Here we discuss the reasons for retaining this health insurer in your investment portfolio.

The company has been making every effort to add to its members base. Centene exited 2020 with its total membership rising 67% year over year. Medical membership of the company has been increasing over the past several quarters due to contract wins and expansion across different regions. The company has been selected for two statewide managed care contracts in Oklahoma.

Centene’s mergers and acquisitions strategy is primarily targeted at expanding the company’s markets and increasing its Medicaid membership. The company also entered into an agreement to buy Magellan Health, Inc. that will strengthen its position in the market and enable it to establish a behavioral health platform.

In December, it acquired PANTHERx, which is one of the largest and the fastest-growing specialty pharmacies in the United States. This buyout reinforces its presence in the booming specialty drug market. The company’s 2020 buyout of WellCare helped it achieve a wider scale and diversification with more than 12 million Medicaid and around 5 million Medicare members.

The leading health insurer has also been witnessing healthy revenue stream courtesy of its buyouts and Medicaid and the Health Insurance Marketplace businesses. On the back of its expansions and new programs, the company’s top line witnessed a CAGR of 37.3% from 2015 to 2020.

For the current year, the company expects revenues $116.1 and $118.1 billion. The mid-point suggests a hike of 5.4% from the 2020 reported figure. Adjusted EPS of Centene is projected in the band of $5-$5.30 per share, indicating growth from the 2020 reported figure of $5.

However, the company’s costs have been escalating due to higher medical costs, selling, general and administrative (SG&A) expenses, amortization of acquired intangible assets and a premium tax expense.

Other Players

Other companies in the same space that are worth mentioning are Select Medical Holdings Corporation (SEM - Free Report) and Anthem, Inc. .

Select Medical surpassed estimates in each of the last four quarters, with the average being 242.4%.

Anthem surpassed estimates in two of the last four quarters, with the average being 1.7%.

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