Yahoo Finance Here's Why Hold Strategy is Apt for Centene (CNC) Stock Now
Centene Corporation CNC is expected to remain on its growth track with the help of membership growth within most of its business lines and several contract wins. However, rising costs and expenses continue to trim margins.
Centene, with a market cap of $35.9 billion, is a well-diversified, multi-national healthcare company. Based in Saint Louis, MO, it offers fully integrated cost-effective services to commercial and government-sponsored programs.
Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
Let’s delve deeper.
The Zacks Consensus Estimate for Centene’s 2023 earnings is pegged at $6.43 per share, indicating an 11.3% year-over-year increase. The company has witnessed seven upward estimate revisions in the past month against none in the opposite direction. CNC beat on earnings in two of the last four quarters and missed on the other occasions, the average surprise being 0.6%.
Centene Corporation Price and EPS Surprise
Centene Corporation price-eps-surprise | Centene Corporation Quote
The consensus estimate for 2023 revenues is pegged at $145.9 billion, suggesting a 0.9% rise from the prior-year reported figure. The company’s 2023 outlook for total revenues of $144.5-$146.5 billion implies a 0.7% improvement at the mid-point from the 2022 reported level. It estimates premium and service revenues of $135.2-$137.2 billion for 2023, the mid-point of which indicates a rise of 0.5% from the 2022 reported figure.
Centene also estimates 2023 adjusted EPS to be $6.40, suggesting a 10.7% increase from the 2022 reported level. The Value Creation Plan launched in 2021 is aiding the company in this regard. Divesting non-core operations like Magellan Rx and PANTHERx is paving the road to improving profitability.
While Centene does not shy away from divesting less profitable businesses, it also has an active inorganic growth strategy. Strategic acquisitions enable the company to scale up its business and increase membership. Major buyouts include Community Medical Holdings, WellCare, MHM Services, Fidelis Care, and Magellan Health.
CNC expects the health benefit ratio to be 87.1-87.7% in 2023, the mid-point of which indicates an improvement from the 2022 reported level of 87.7%. Membership growth on the back of contract wins and network expansion is helping the company. Our estimate for total membership for 2023 indicates more than 9% year-over-year growth.
The company is undervalued at the current level. CNC is now trading at 10.33X forward 12-month earnings value, which compares favorably with the 17.14X of the industry.
Risks
However, there are a few factors, which are likely to impede the stock’s growth.
Centene’s commercial group business continues to witness declining membership levels despite an improving employment scenario, which usually leads to higher demand. The high level of inflation is expected to keep the commercial business under pressure and increase costs.
As of Mar 31, 2023, CNC’s long-term debt amounted to $18.2 billion. Its total debt reflects 42.1% of its total capital at the first-quarter end. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.
Key Picks
Investors interested in the broader medical space may look at better-ranked players like Life Time Group Holdings, Inc. LTH, GeneDx Holdings Corp. WGS and Establishment Labs Holdings Inc. ESTA, 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 Life Time Group’s 2023 earnings is pegged at 41 cents per share, indicating a massive improvement from the year-ago reported loss of 18 cents. The consensus estimate for LTH’s revenues in 2023 suggests a 22.8% year-over-year rise.
The consensus estimate for GeneDx’s 2023 earnings indicates 89% year-over-year growth. The Zacks Consensus Estimate for WGS’ revenues in 2023 is pegged at $205 million.
The consensus mark for Establishment Labs’ 2023 earnings has improved 6.2% in the past 30 days. The consensus estimate for ESTA’s revenues in 2023 suggests 27.6% year-over-year growth.
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Centene Corporation (CNC) : Free Stock Analysis Report
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GeneDx Holdings Corp. (WGS) : Free Stock Analysis Report
