Was Centene Corporation’s (NYSE:CNC) Earnings Growth Better Than The Industry’s?
For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Centene Corporation (NYSE:CNC) useful as an attempt to give more color around how Centene is currently performing.
Check out our latest analysis for Centene
How CNC fared against its long-term earnings performance and its industry
CNC’s trailing twelve-month earnings (from 30 June 2018) of US$1.08b has jumped 35.1% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 37.0%, indicating the rate at which CNC is growing has slowed down. To understand what’s happening, let’s take a look at what’s transpiring with margins and if the whole industry is feeling the heat.
In the past couple of years, revenue growth has fallen behind which suggests that Centene’s bottom line has been propelled by unsustainable cost-cutting. Viewing growth from a sector-level, the US healthcare industry has been growing its average earnings by double-digit 15.7% in the prior twelve months, and 10.5% over the previous five years. This growth is a median of profitable companies of 25 Healthcare companies in US including Cardinal Health, LifePoint Health and Diplomat Pharmacy. This suggests that whatever uplift the industry is deriving benefit from, Centene is able to amplify this to its advantage.
In terms of returns from investment, Centene has fallen short of achieving a 20% return on equity (ROE), recording 9.9% instead. Furthermore, its return on assets (ROA) of 4.7% is below the US Healthcare industry of 6.6%, indicating Centene’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Centene’s debt level, has declined over the past 3 years from 16.9% to 8.4%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 49.1% to 59.9% over the past 5 years.
What does this mean?
Though Centene’s past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Centene gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Centene to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CNC’s future growth? Take a look at our free research report of analyst consensus for CNC’s outlook.
Financial Health: Are CNC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
