Centene Corporation (CNC Quick QuoteCNC - Free Report) is currently aided by expanding premium and service revenues, Medicaid contract wins, a well-established Marketplace business and a commendable financial position. A solid 2023 business outlook also reinforces investors’ confidence in the stock.

Zacks Rank & Price Performance

Centene currently carries a Zacks Rank #3 (Hold).

The stock has gained 9.5% in the past six months compared with the industry’s 8% growth. The Zacks Medical sector inched up 0.2% while the S&P 500 composite increased 7.4% in the same time frame.

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Favorable Style Score

CNC is well-poised for progress, as evidenced by its impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of all three factors.

Robust Growth Prospects

The Zacks Consensus Estimate for Centene’s 2023 earnings is pegged at $6.65 per share, indicating an improvement of 15.1% from the year-earlier reading. The consensus mark for 2024 earnings is pegged at $6.73 per share, suggesting 1.2% growth from the 2023 estimate.

Decent Earnings Surprise History

CNC’s bottom line outpaced estimates in two of the trailing four quarters and missed the mark twice, the average surprise being 5.62%.

A Strong EPS Outlook

Management forecasts adjusted earnings per share to be a minimum of $6.60 in 2023, which suggests growth of at least 14.2% from the 2022 figure. It estimates the metric to stay higher than $6.70 in 2024.

Key Business Tailwinds

The top line of Centene benefits on the back of a strong customer base in its Medicaid and Medicare businesses, which in turn, boosts the most significant top-line contributor for a health insurer, premiums. The strength of these businesses has given several contract wins and renewed agreements to CNC, which are another means to boost membership growth.

For nearly four decades, a specialized services prowess has enabled Centene to establish and strengthen relationships with members and providers as well as deliver enhanced care to members of government-sponsored programs. An aging U.S. population favors Medicare Advantage plans, which is likely to keep sustaining the solid demand for the health insurer’s Medicare plans.

Premium and service revenues of Centene improved 2.8% year over year in the first nine months of 2023. For 2023, management forecasts premium and service revenues within $137.5-$139.5 billion.

The ongoing year witnessed CNC receiving Medicaid contracts from the state authorities of Arizona and Oklahoma. Its Marketplace business boasts an extensive presence across the United States, serving 3.7 million members as of Sep 30, 2023. This business needs a special mention as Centene has been quite active this month in upgrading the benefits of its Marketplace plans distributed under the brand name of Ambetter Health.

While the tie-up with RUSH University System for Health was meant to provide access to RUSH’s 140 care locations to CNC’s Marketplace members across the Chicago area and Northwest Indiana, the partnership with Broward Health aimed to provide high-quality healthcare services across Broward County.

Centene pursues mergers and acquisitions as a means to enhance its capabilities and expand its market presence. It also resorts to divestitures of underperforming businesses to intensify focus on core operations. These sell-offs are often a means of sustaining share buyback activities and paying off debts. The efforts seem to have borne fruits for CNC as long-term debt dipped 0.3% as of Sep 30, 2023, from the 2022-end level. A decline in debt burden brings down interest expenses as well, thereby providing respite to margins.  

The health insurer also boasts a solid financial strength, substantiated by growing cash reserves and adequate cash-generation abilities. Its cash and cash equivalents of $18.2 billion at the third-quarter end advanced 50.7% from the figure at 2022 end. Centene generated operating cash flows of $7.8 billion in the first nine months of 2023. 

Stocks to Consider

Some better-ranked stocks in the Medical space are Amphastar Pharmaceuticals, Inc. (AMPH Quick QuoteAMPH - Free Report) , Elevance Health, Inc. (ELV Quick QuoteELV - Free Report) and Penumbra, Inc. (PEN Quick QuotePEN - Free Report) . While Amphastar Pharmaceuticals currently sports a Zacks Rank #1 (Strong Buy), Elevance Health and Penumbra carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Amphastar Pharmaceuticals' earnings surpassed estimates in each of the last four quarters, the average surprise being 52.06%. The Zacks Consensus Estimate for AMPH’s 2023 earnings indicates a surge of 62.9% from the prior-year tally. The consensus mark for revenues suggests an improvement of 28.4% from the year-ago actual. The consensus mark for AMPH’s 2023 earnings has moved 0.3% north in the past 30 days.

The bottom line of Elevance Health beat estimates in each of the trailing four quarters, the average beat being 2.91%. The Zacks Consensus Estimate for ELV’s 2023 earnings indicates a rise of 13.7% from the year-ago figure. The consensus mark for revenues suggests an improvement of 9% from the prior-year tally. ELV boasts an impressive VGM Score of A.

Penumbra’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 55.65%. The Zacks Consensus Estimate for PEN’s 2023 earnings is pegged at $2.04 per share, which increased nearly 13-fold from the year-ago actual. The consensus mark for revenues suggests 25.3% growth from the year-ago actual. The consensus mark for PEN’s 2023 earnings has moved 17.9% north in the past 60 days.

Shares of Amphastar Pharmaceuticals and Elevance Health have gained 8.2% and 5.5%, respectively, in the past six months. However, the Penumbra stock has declined 25.8% in the same time frame.