Centene Corporation CNC has been growing on buyouts. During 2010-15, the company had made some major acquisitions that expanded its markets and increased its Medicaid membership. On the back of substantial growth in existing markets, expansion into new markets and broadening of its product offerings, the top line of the company witnessed a five-year (2011-16) compound annual growth rate of 50%. In 2017, the trend continued on the back of Health Net acquisition that added significantly to its top line.
Year to date, its shares have gained 53%, outperforming the industry’s rally of 25%. This indicates shareholders’ optimism on the stock.
Centene’s strong balance sheet continues to impress. Its solid cash position supports its organic and inorganic investments. For the first half of 2017, the company reported $942 million of operating cash-inflow against an outflow of $223 million in the year-ago quarter.
However, the company is burdened with high level of long-term debt that has been consistently rising since 2005. This not only increases the financial risk but also raises interest expenses, which again hurt margins. The same trend continued in the first half of 2017 as well.
Moreover, its total expenses also kept rising since 2007 due to higher selling, general and administrative expenses, amortization of acquired intangible assets and premium tax costs.
Its trailing 12-months return on equity of 14.6 not only deteriorated but also compares unfavorably with the industry average of 20.0, indicating that the company is less efficient in using investors’ fund.
Zacks Rank and Stocks to Consider
Centene currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors interested in this space can consider better-ranked stocks like Aetna, Inc AET, Anthem, Inc. ANTM and Amedisys Inc AMED. All the three stocks carry a Zacks Rank #2 (Buy).
Aetna’s earnings surpassed expectations in each of the last four quarters with an average beat of nearly 19%.
Anthem delivered positive surprises in three of the last four quarters with an average beat of 8.6%.
Amedisys delivered positive surprises in three of the last four quarters with an average beat of 7.2%.
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