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Why You Should Retain Centene (CNC) in Your Portfolio Now
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Centene Corporation (CNC - Free Report) is well-poised to grow on the back of membership growth and strategic acquisitions. Its focus on its core Managed Care business bodes well. However, weakness in Commercial Group business continues to be a concern.
Centene — with a market cap of $47.8 billion — is a well-diversified, multi-national healthcare company. Based in Saint Louis, MO, CNC offers fully integrated cost-effective services to both commercial and government-sponsored programs.
Courtesy of solid prospects, this currently Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
The Trend in Estimates
The Zacks Consensus Estimate for Centene’s 2022 earnings is pegged at $5.71 per share, indicating a 10.9% year-over-year increase. The company has witnessed no estimate revisions in the past week. CNC beat on earnings in all the last four quarters, the average being 5.2%.
The consensus estimate for 2022 revenues stands at $144.7 billion, suggesting a 14.9% rise from the prior-year reported figure.
Growth Drivers
Contract wins and expansion across different regions are helping Centene to stimulate membership growth. The trend continued in the first nine months of 2022 as well, when the metric rose 45% year over year. For the full year, our estimate suggests 5% membership growth on the back of a rise in Medicaid and Medicare businesses.
The company opts for strategic acquisitions to scale up its business and increase membership. Significant deals include Community Medical Holdings, MHM Services, Fidelis Care, Magellan Health and others.
These contribute significantly to its top-line growth. To that end, we expect premiums to grow 12.4% this year while service revenue growth is estimated at more than 50%.
The company also does not shy away from shedding non-core and less profitable operations to improve efficiency and profitability. Divesting operations like PANTHERx, Magellan Specialty Health and others will enable it to intensify its focus on its core Managed Care business.
Despite the significant rise in the number of people opting for procedures, which were paused earlier due to the pandemic, Centene is expected to manage medical costs effectively. Management maintained the guidance for 2022 HBR in the 87.6-88% band, the mid-point of which is flat with the 2021 reported figure.
The company is currently undervalued, which is encouraging for investors. The stock is currently trading at 13.94X forward 12-month earnings value, which compares favorably to the 20.63X of the industry.
Risks
However, there are a few factors, which are impeding the stock’s growth lately.
Centene’s Commercial Group business continues to witness declining membership levels, despite improving employment scenarios, which generally lead to higher demand. Also, its total debt reflects 41.8% of its total capital at the third-quarter end, higher than the industry's average of 39.2%.
Long-term debt amounted to $18.1 billion as of Sep 30, 2022. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.
The Zacks Consensus Estimate for Elevance Health’s full-year earnings is currently pegged at $29.02 per share, indicating a year-over-year increase of 11.7%. ELV beat earnings estimates in all the past four quarters, with an average surprise of 4.1%.
The Zacks Consensus Estimate for AMN Healthcare’s current year bottom line indicates a 44% improvement from the prior-year reported number. The consensus estimate for AMN’s top line also indicates 30.1% year-over-year growth.
The Zacks Consensus Estimate for Inventiva’s 2022 bottom line indicates an 11.3% year-over-year improvement. IVA has witnessed one upward estimate revision in the past 60 days against none in the opposite direction.
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Why You Should Retain Centene (CNC) in Your Portfolio Now
Centene Corporation (CNC - Free Report) is well-poised to grow on the back of membership growth and strategic acquisitions. Its focus on its core Managed Care business bodes well. However, weakness in Commercial Group business continues to be a concern.
Centene — with a market cap of $47.8 billion — is a well-diversified, multi-national healthcare company. Based in Saint Louis, MO, CNC offers fully integrated cost-effective services to both commercial and government-sponsored programs.
Courtesy of solid prospects, this currently Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
The Trend in Estimates
The Zacks Consensus Estimate for Centene’s 2022 earnings is pegged at $5.71 per share, indicating a 10.9% year-over-year increase. The company has witnessed no estimate revisions in the past week. CNC beat on earnings in all the last four quarters, the average being 5.2%.
Centene Corporation Price and EPS Surprise
Centene Corporation price-eps-surprise | Centene Corporation Quote
The consensus estimate for 2022 revenues stands at $144.7 billion, suggesting a 14.9% rise from the prior-year reported figure.
Growth Drivers
Contract wins and expansion across different regions are helping Centene to stimulate membership growth. The trend continued in the first nine months of 2022 as well, when the metric rose 45% year over year. For the full year, our estimate suggests 5% membership growth on the back of a rise in Medicaid and Medicare businesses.
The company opts for strategic acquisitions to scale up its business and increase membership. Significant deals include Community Medical Holdings, MHM Services, Fidelis Care, Magellan Health and others.
These contribute significantly to its top-line growth. To that end, we expect premiums to grow 12.4% this year while service revenue growth is estimated at more than 50%.
The company also does not shy away from shedding non-core and less profitable operations to improve efficiency and profitability. Divesting operations like PANTHERx, Magellan Specialty Health and others will enable it to intensify its focus on its core Managed Care business.
Despite the significant rise in the number of people opting for procedures, which were paused earlier due to the pandemic, Centene is expected to manage medical costs effectively. Management maintained the guidance for 2022 HBR in the 87.6-88% band, the mid-point of which is flat with the 2021 reported figure.
The company is currently undervalued, which is encouraging for investors. The stock is currently trading at 13.94X forward 12-month earnings value, which compares favorably to the 20.63X of the industry.
Risks
However, there are a few factors, which are impeding the stock’s growth lately.
Centene’s Commercial Group business continues to witness declining membership levels, despite improving employment scenarios, which generally lead to higher demand. Also, its total debt reflects 41.8% of its total capital at the third-quarter end, higher than the industry's average of 39.2%.
Long-term debt amounted to $18.1 billion as of Sep 30, 2022. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.
Key Picks
Some better-ranked stocks in the broader medical space are Elevance Health Inc. (ELV - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Inventiva S.A. (IVA - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Elevance Health’s full-year earnings is currently pegged at $29.02 per share, indicating a year-over-year increase of 11.7%. ELV beat earnings estimates in all the past four quarters, with an average surprise of 4.1%.
The Zacks Consensus Estimate for AMN Healthcare’s current year bottom line indicates a 44% improvement from the prior-year reported number. The consensus estimate for AMN’s top line also indicates 30.1% year-over-year growth.
The Zacks Consensus Estimate for Inventiva’s 2022 bottom line indicates an 11.3% year-over-year improvement. IVA has witnessed one upward estimate revision in the past 60 days against none in the opposite direction.