U.S. Markets closed

After Centene’s 4Q15 Earnings Release, What Are Analysts Recommending?

Margaret Patrick

Centene Played Big in Medicaid in 2015, But Can It Keep It Up?

(Continued from Prior Part)

Centene’s post-4Q15 analyst recommendations

Centene Corporation (CNC) released its 4Q15 and fiscal 2015 earnings results on February 9, 2016. In Bloomberg’s survey of 20 brokerage firms recorded on February 10, 2016, about 73.7% of the brokers rated Centene a “buy,” while 21.1% rated the company a “hold.” Only 5.3% brokers rated Centene as a “sell.”

The table below shows the 14 brokerage firms that have provided a target price for Centene over the next 12 months. The consensus 12-month target price for Centene is $81.73, which implies a 47.2% return over the company’s price of $55.51 on February 9, 2016.

If Centene’s share price manages to realize its expected returns over the next year, it would likely have a positive impact on holdings in the Guggenheim S&P MidCap 400 Pure Growth ETF (RFG). Centene makes up about 2.5% of the total portfolio holdings of RFG.

Factors supporting analyst recommendations

Centene is mainly focused on government-sponsored programs—an opportunity worth nearly $1.5 trillion. The company is currently developing a pipeline of services that will target $205 billion of the total government-sponsored health insurance market.

In addition to being a strong Medicaid player, the company’s merger with Health Net (HNT) is expected to help Centene explore growth opportunities in the $728 billion Medicare market. Centene plans to enter the MA (Medicare Advantage) market gradually, initially offering services only in three states. The company plans to leverage its strategy of offering localized services, combined with Health Net’s value-based contracting model, to target low-income MA members. The deal between Aetna (AET) and Humana (HUM) is likewise expected to increase Aetna’s exposure to the growing Medicare segment.

Centene has also projected that after the completion of Centene-Health Net deal, it will likely increase revenues from cross-selling opportunities in the specialty services segment. The company also plans to explore other strategic merger and acquisition opportunities in future years in an effort to add scale and capabilities to the company’s portfolio and thus help return added value to shareholders.

Factors refuting analyst recommendations

A major portion of Centene’s future growth strategy, however, depends on the successful completion of the Centene-Health Net deal. If the deal is rejected or delayed by the California Department of Insurance, for example, it could result in changes or slower-than-expected progress of Centene’s strategy, and this would have an adverse impact on the validity of the above analyst recommendations.

For updates on Centene and related analysis, keeping checking in with Market Realist’s Healthcare page.

Browse this series on Market Realist: