Here's Why You Should Hold Centene (CNC) in Your Portfolio
Centene Corporation CNC is poised for growth, riding on a healthy revenue stream, improving membership and a solid 2020 guidance.
Over the past 30 days, the stock has witnessed its 2020 earnings estimate move 0.2% north.
It is well-placed for growth, evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.
Here we discuss the reasons for retaining this presently Zacks Rank #3 (Hold) health insurance company in your investment portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Centene has been witnessing consistent and significant revenue growth since 2002. The company’s top line witnessed a CAGR of 34.6% from 2015 to 2019. In the first six months of 2020, the metric improved 46% year over year on the back of its WellCare buyout, membership growth in Medicaid, strength in the Health Insurance Marketplace business and its expansions in new programs across many states. For the current year, the company expects revenues in the $109-$111.4 billion band, the midpoint being 32.3% higher than the 2019 reported figure. This could primarily be backed by membership growth, expansion of contracts and other investments.
Its mergers and acquisitions strategy mainly targets expansion of its markets and increasing its Medicaid membership. In the second quarter of 2019, the company completed the acquisition of QCA Health Plan, Inc. and also made a substantial investment in RxAdvance. Further in July, it purchased additional stakes in Ribera Salud, which makes the company own 90% interest in the acquired entity.
Centene also acquired WellCare in January 2020. This consolidated entity now has a wider scale and diversification with more than 12 million Medicaid and around 5 million Medicare members. In total, it has around 22 million members across 50 US states. The transaction is expected to generate adjusted earnings per share accretion of approximately mid-single digits during 2021 with long-term growth opportunities and cost-reduction across markets and products.
Management recently informed that its Indiana subsidiary received a contract from the Indiana Department of Administration again. The subsidiary — Managed Health Services (MHS) — currently serves more than 330,000 members in the state and has a long history of effectively catering to health issues in the region. The new deal has a duration of four years with an option of two contract renewals of one year each.
Medical membership of the company has been rising over the past several quarters owing to contract wins and expansion across different regions. As of Jun 30, 2020, managed care membership came in at 24.6 million, up 64% year over year. We expect this trend to continue on the back of certain contract gains as well as the WellCare buyout.
The company has been taking initiatives to provide telehealth services as well.
Its 2020 outlook impresses. For the ongoing year, adjusted EPS is expected between $4.76 and $4.96, up from the previous projection of $4.56-$4.76. The company also expects peak membership growth of 1.4 million members during the fourth quarter.
Its long-term growth rate stands at 14.10%, higher than the industry's average of 13.80%.
Price Performance
Shares of this health insurance giant have gained 28.4% in a year’s time, outperforming its industry's growth of 28.1%.
Companies in the same space, such as such as Humana Inc. HUM, Anthem Inc. ANTM and UnitedHealth Group Incorporated UNH have gained 57.3%, 8.5% and 41.8%, respectively, in the same time frame. All companies currently carry a Zacks Rank #2 (Buy).
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