Centene (CNC) Divests Circle Health Group, Optimizes Portfolio
Centene Corporation CNC recently announced that it has signed a definitive agreement to sell Circle Health Group to PureHealth at an enterprise value of $1.2 billion. The transaction is expected to close by the first quarter of 2024, subject to regulatory approvals.
The latest move bears testament to Centene’s intensified focus to execute its value creation plan and grow its Managed Care business, which positions the health insurer well for long-term growth and profitability. The business witnessed year-over-year membership growth of 7% as of Jun 30, 2023. Efforts to boost the unit bode well since it remains the most significant contributor to the top line of the health insurer.
The company is also strengthening its Medicare business through various partnerships. Recently, Wellcare collaborated with The American Legion to become its exclusive Medicare partner. This is expected to increase the top line of its Medicare business, which increased 0.4% year over year in the second quarter.
Also, Centene makes sure that it identifies strategic alternatives for shedding non-core assets and subsequently optimizes its portfolio. CNC looks to divest its businesses to companies that would support its growth prospects. Centene completed the acquisition of Circle Health Group in 2021. However, it was labelled as a non-core acquisition by management. Moreover, under the ownership of PureHealth, Circle Health Group is expected to deliver high-quality care and improved clinical results.
Sell-offs are often a means for Centene to sustain its share buyback record and bring down the mounting debt burden and associated interest expenses. As of Jun 30, 2023, long-term debt declined 0.2% from the 2022-end level. However, mounting interest expenses are yet to be controlled, which escalated 11.7% year over year in the second quarter of 2023. As debts are repaid using proceeds from sell-offs, cash reserves of the health insurer can be directed to pursue growth-related initiatives.
Centene has been quite active on the divestiture front for quite some time. Year to date, it has sold Apixio, Magellan Specialty Health, Centurion, prison healthcare business and Health Smart.
Price Performance
Shares of Centene have gained 3.3% in the past three months compared with the industry’s rise of 2.1%.
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Zacks Rank & Key Picks
Centene currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader medical sector are Molina Healthcare, Inc. MOH, Alcon Inc. ALC and The Ensign Group, Inc. ENSG. Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The bottom line of Molina Healthcare outpaced estimates in each of the last four quarters, the average surprise being 7.2%. The Zacks Consensus Estimate for MOH’s 2023 earnings and revenues suggests an improvement of 15.3% and 3.4%, respectively, from the corresponding year-ago reported figures. The consensus mark for MOH’s 2023 earnings has moved 1.8% north in the past 30 days.
The bottom line of Alcon outpaced estimates in three of the last four quarters, meeting once, the average surprise being 8%. The Zacks Consensus Estimate for ALC’s 2023 earnings and revenues suggests an improvement of 21.4% and 9%, respectively, from the corresponding year-ago reported figures. The consensus mark for ALC’s 2023 earnings has moved 3% north in the past 30 days.
The bottom line of The Ensign Group outpaced estimates in two of the last four quarters, meeting once and missing once, the average surprise being 0.9%. The Zacks Consensus Estimate for ENSG’s 2023 earnings and revenues suggests an improvement of 13.8% and 22.7%, respectively, from the corresponding year-ago reported figures.
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