Centene Corporation (CNC - Free Report) is well poised for growth on the back of its recent business-boosting pacts. In March 2018, it has purchased a stake in cloud-based pharmacy benefit manager, RxAdvance, which should help it to lower drug costs and provide improved health care services.
The stock further looks attractive given its successful acquisition of Health Net, which has led to membership growth, strong medicaid business and a solid balance sheet. Moreover, its pending acquisition of Community Medical Holdings Corp, MHM Services, Inc. and Fidelis Care should drive long-term growth in a highly regulated industry.
Estimates of Centene have moved upward over the past 60 days, reflecting analysts’ confidence in the stock. The company has seen the Zacks Consensus Estimate for current-year and 2019 earnings being revised 22% and 23% upward to $7.07 and $8.13, respectively.
Shares of this Zacks Rank #2 (Buy) company have outperformed its industry in a year’s time. The stock has soared 54.2% compared with the industry’s growth of 35.1%.
Let’s focus on the factors that make Centene an attractive pick for investors.
Solid 2018 Guidance: Centene has issued its earnings guidance for 2018. It expects adjusted earnings per share to range between $6.95 to 47.35. This is not only higher than the previous projection of $5.47-$5.87 but also reflects a 42% rise over 2017 earnings. The medical insurer also anticipates operating revenues in the band of $60.6-$61.4 billion, up from the earlier view of $60.0-$60.8 billion and lying 26% above the value of 2017 revenues. This upbeat outlook further instills shareholders' optimism on the stock.
Consistent Top-line Growth: Centene has witnessed steady revenue growth over the past several years (CAGR of 42% from 2012 to 2017). Revenues have followed this uptrend on the back of the company’s solid inorganic strategies. The Zacks Consensus Estimate for 2018 revenues is pegged at $61 billion, reflecting 26% year over year growth.
Strong Capital Position: Centene’s solid cash position has enabled the company to deploy capital most effectively in order to enhance shareholders’ value. Net cash flow from operations, which has been increasing since 2010 (except for 2017), has financed most of the company’s growth-oriented investments.
Positive Earnings Surprise History: Centene boasts an encouraging earnings surprise history, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters with an average beat of 9.8%.
Attractive Valuation: Going by the price to earnings (P/E) ratio, Centene is trading at a forward 12-month P/E multiple of 14.5x, lower than the industry average of 17.3x. This also compares favorably with the S&P 500 index’s average of 18.1x. The company’s valuation indicates that the stock is relatively undervalued compared with its peers. The stock carries an impressive Value Score of A. Back tested results have shown that stocks with a Value Score of A or B combined with a favorable Zacks Rank #1 (Strong Buy) or 2 offer best investment bets.
Other Stocks to Consider
Investors interested in the medical sector can also consider some other top-ranked stocks like AMN Healthcare Services Inc. (AMN - Free Report) , Anthem Inc. (ANTM - Free Report) and Envision Healthcare Corporation (EVHC - Free Report) , all carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare’s earnings surpassed estimates in three of the last four quarters with an average positive surprise of 5%.
Anthem’s earnings exceeded estimates in each of the trailing four quarters with an average beat of 9.6%.
Envision Healthcare is a for-profit American health insurance company, having delivered positive surprises in three of the last four quarters with an average positive surprise of 1.1%.
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