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Why Centene (CNC) Stock More Than Doubled its Industry YTD

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Centene Corp. (CNC - Free Report) has been consistently grabbing investors’ attention, increasing their confidence in the stock’s strong operational performance.
This trend is likely to continue, driven by a recent announcement of acquisitions and the receipt of Medicaid contracts.
 
Continuing with its strong operating performance from the past many years into the first quarter as well, Centene reported solid top and bottom-line growth and robust operating cash flows. Membership at the end of the last reported quarter increased 6% while revenues were up 13% and earnings per share, soared 94%.
 
The company’s efficiency and investors’ high expectations have led the stock to rally 18%, more than double the industry’s growth of 7.8% year to date.
 
 
 
The stock has also delivered a solid performance compared with other players like UnitedHealth Group Inc. (UNH - Free Report) and Anthem Inc. (ANTM - Free Report) , respectively up 12.8% and 1.3%, while shares of Aetna Inc. have slipped 0.8%, year to date.
 
What Led to the Surge
 
The company dominates as a market leader in the Medicaid business. It was awarded state Medicaid contract in New Mexico earlier this January, in March at Arizona and in Iowa last month. A subsidiary of the company was also granted a correctional healthcare contract in Tucson, AZ. Its Washington unit is also selected for the Medicaid contract. These approvals will likely further drive the company’s revenues from this line of business.
 
Investors favorably view the recent buyouts of the company, which are expected to expand its business and strengthen the services offerings portfolio besides contributing to its inorganic growth. In this vein, the company acquired MHM Servcies, a national provider of healthcare and staffing services to conventional systems and other governmental agencies. This consolidation adds one new state to Centene's current portfolio of13 states.

In March 2018, the company completed the acquisition of Community Medical Group (CMG), representing the company’s targeted approach toward vertical integration in healthcare. Apart from CMG’s primary care services, its specialty care, transportation and a suite of social and other support services should enhance Centene’s service portfolio.

In the same month, Centene made an equity investment in RX Advance, a full-service pharmacy benefits manager. The company expects to use its cloud-based technology platform to significantly reduce administrative cost as well as the affordable drug-impacted medical cost.

Also in March, the company purchased an additional 61% investment stake in Interpreta. It is an innovative health IT company, focused on clinical and genomic data plus real-time analytics.

These transactions testify Centene’s continued execution of its diversification strategy. As a strategic move, this in turn would cement its position as a healthcare enterprise and a leader in government-sponsored healthcare.

Centene carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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