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Centene vs. Anthem: Which is a Better-Positioned Stock?
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The health insurance industry has been gaining traction for sometime now on the back of solid mergers and acquisitions, demand for value-based care, complementary businesses, product modifications, and improved services. Other factors contributing to the upside are expansion of international operations, better claims handling, medical cost management, technological investment and upgrade plus solvency level.
The leading health insurers are acquiring leverage from an increasing number of baby boomers as well as the usage of blockchain, AI, analytics and other technologies.
The companies flourished in the first half of the year on the back of solid Medicare and Medicaid businesses, contract wins, operational efficiency and rising enrolment. Several companies, such as Molina Healthcare, Inc. (MOH - Free Report) and Select Medical Holdings Corporation (SEM - Free Report) raised 2021 outlook concurrent with second-quarter 2021 results.
The political, legislative and regulatory trends are long-term positives for the health insurance industry.
The health insurers have been benefiting from virtual health services as well. Many companies, such as Anthem Inc. took up several initiatives to enhance their virtual care.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of the companies with strong business fundamentals. The Zacks HMO industry carries a Zacks Industry Rank within the top 42% (105 of 253).
In the past year, shares of Anthem and Centene have gained 35.7% and 1.6%, respectively. The industry has rallied 25.8% in the same time frame compared with the S&P 500 Index’s 29.8% gain.
Image Source: Zacks Investment Research
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 three of the trailing four quarters, missing the same in the remaining period, the average surprise being 3.97%. Notably, Centene’s earnings surpassed the consensus mark in two of the trailing four quarters, falling short of the same in the remaining two, the average miss being 5.23%. Here Centene has an edge over Anthem.
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 15.2% compares favorably with Centene’s ROE of 10.4%.
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 17.53, both Anthem and Centene are undervalued with a reading of 13.59 and 11.39 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 2021 earnings implies a 13.9% rise from the year-ago reported figure while that of Centene suggests an increase of 2.8% from the prior-year reported number.
Here Anthem has an edge over Centene in terms of yearly earnings growth.
Debt to Equity
Both companies have a higher debt-to-equity ratio than the industry average of 62.5X. However, Centene’s ratio of 64.5X betters Anthem’s leverage ratio of 65.8X. Therefore, Centene is at an advantage over Anthem on this front.
Bottomline
Our comparative analysis shows that Anthem is better-positioned than Centene with respect to return on equity and earnings growth. However, Centene scores higher in terms of earnings surprise, leverage ratio and valuation. As the scale is slightly tilted toward Centene, the stock discernibly makes a more promising investment proposition.
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Centene vs. Anthem: Which is a Better-Positioned Stock?
The health insurance industry has been gaining traction for sometime now on the back of solid mergers and acquisitions, demand for value-based care, complementary businesses, product modifications, and improved services. Other factors contributing to the upside are expansion of international operations, better claims handling, medical cost management, technological investment and upgrade plus solvency level.
The leading health insurers are acquiring leverage from an increasing number of baby boomers as well as the usage of blockchain, AI, analytics and other technologies.
The companies flourished in the first half of the year on the back of solid Medicare and Medicaid businesses, contract wins, operational efficiency and rising enrolment. Several companies, such as Molina Healthcare, Inc. (MOH - Free Report) and Select Medical Holdings Corporation (SEM - Free Report) raised 2021 outlook concurrent with second-quarter 2021 results.
The political, legislative and regulatory trends are long-term positives for the health insurance industry.
The health insurers have been benefiting from virtual health services as well. Many companies, such as Anthem Inc. took up several initiatives to enhance their virtual care.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of the companies with strong business fundamentals. The Zacks HMO industry carries a Zacks Industry Rank within the top 42% (105 of 253).
Against this backdrop, let’s look at the two leading health insurers, namely Centene Corporation (CNC - Free Report) and Anthem with their respective market capitalizations of $36.72 billion and $91.46 billion. Each stock currently has a Zacks Rank #3 (Hold) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past year, shares of Anthem and Centene have gained 35.7% and 1.6%, respectively. The industry has rallied 25.8% in the same time frame compared with the S&P 500 Index’s 29.8% gain.
Image Source: Zacks Investment Research
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 three of the trailing four quarters, missing the same in the remaining period, the average surprise being 3.97%. Notably, Centene’s earnings surpassed the consensus mark in two of the trailing four quarters, falling short of the same in the remaining two, the average miss being 5.23%. Here Centene has an edge over Anthem.
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 15.2% compares favorably with Centene’s ROE of 10.4%.
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 17.53, both Anthem and Centene are undervalued with a reading of 13.59 and 11.39 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 2021 earnings implies a 13.9% rise from the year-ago reported figure while that of Centene suggests an increase of 2.8% from the prior-year reported number.
Here Anthem has an edge over Centene in terms of yearly earnings growth.
Debt to Equity
Both companies have a higher debt-to-equity ratio than the industry average of 62.5X. However, Centene’s ratio of 64.5X betters Anthem’s leverage ratio of 65.8X. Therefore, Centene is at an advantage over Anthem on this front.
Bottomline
Our comparative analysis shows that Anthem is better-positioned than Centene with respect to return on equity and earnings growth. However, Centene scores higher in terms of earnings surprise, leverage ratio and valuation. As the scale is slightly tilted toward Centene, the stock discernibly makes a more promising investment proposition.