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Centene vs. Anthem: Which is a Better-Positioned Stock?

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·5 min read
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The health insurance industry is well-poised for growth on the back of an aging population and boom in Medicaid and Medicare businesses. Although the COVID-19 pandemic dented the premiums of the companies and caused a decline in Commercial business, both are slowly gaining back momentum as situation is improving.

The companies are expected to bounce back owing to rising enrolment, increasing contribution from complementary businesses, product modifications, improved services, expansion of international operations, better claims handling, medical cost management, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.

The health insurance industry remains a promising platform for investment owing to rising demand for value-based health plans, increasing number of baby boomers and better health outcomes through usage of analytics, artificial intelligence plus other advanced technologies.

The industry is continuously evolving with cross-industry M&A activity that is reshaping business profiles and reducing the number of its players, which gives insurers greater power to negotiate with hospital and drug companies. For example, Centene Corporation CNC acquired WellCare (in January 2020). The consolidated entity now has a wider scale and diversification with more than 12 million Medicaid and around 5 million Medicare members. Molina Healthcare, Inc MOH also entered into an agreement to buy the Magellan Complete Care line of business of Magellan Health, Inc. for a total deal value of $820 million. The transaction, expected to close in the first quarter of 2020, will serve more than 3.6 million members under government-sponsored healthcare programs across 18 states.

Bernie Sanders’ exit from the presidential race proved advantageous for health insurers. His policies haven’t been positive for health insurance stocks as he favored Medicare-For-All and intended to abolish private insurance, which were detrimental to health insurers’ interest.
Currently, the presidential campaign narrows down to Joe Biden and the ruling President Trump. Both incidentally argued that proposals like Medicare-For-All are too costly, which is undoubtedly favorable for health insurers.

The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of companies with strong business fundamentals. The buoyancy in the health insurance space is confirmed by its Zacks Industry Rank within the top 37% (92 of 252).

Against this backdrop, let’s look at the two leading health insurers, Centene and Anthem Inc. ANTM, with the respective market capitalization of $35.87 billion and $66.99 billion. Each stock has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Centene and Anthem have gained 4.2% and 17.4% quarter to date, respectively. The industry has rallied 14.8% quarter to date compared with the S&P 500 Index’s 20.6% increase.

Let's analyze certain other parameters to find out which company is better positioned.

Earnings Surprise History

A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.

Anthem’s bottom line managed to beat estimates in two of the trailing four quarters, missing the same in the other two, the average negative surprise being -0.04%. Notably, Centene’s earnings also surpassed the mark in two of the trailing four quarters, falling short of the same in the other two, the average miss being -1.98%.

While both companies have a negative earnings surprise, Anthem has an edge over Centene here.

Return on Equity

Return on equity is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.

Anthem’s ROE of 16.38% compares favorably with Centene’s ROE of 11.5%.


Price-to-earnings value is one of the multiples used for valuing health insurers. Compared with the health insurance industry’s forward 12 month P/E ratio of 15.07, both Anthem and Centene are undervalued with a reading of 11.28 and 11.92 each. However, Centene has a better reading than that of Anthem.


Both companies have higher debt-to-equity ratio than the industry average of 63.4X. However, Anthem’s leverage ratio of 65X betters Centene’s ratio of 73X. Therefore, Anthem is at an advantage over Centene on this front.

Earnings Guidance

Earnings growth along with stock price gains often comes as an indication of a company’s strong prospects.

The Zacks Consensus Estimate for Anthem’s 2020 earnings is projected to rise 14.5% year over year while that of Centene is expected to increase 7.2% compared with the industry’s earnings growth of 3.9%.
Here Anthem has a marginal edge over Centene in terms of yearly earnings growth.

Bottom Line

Our comparative analysis shows that Anthem is better-positioned than Centene with respect to earnings surprise, return on equity and earnings growth. Meanwhile, Centene scores higher in terms of leverage ratio and valuation. As the scale is slightly tilted toward Anthem, the stock discernibly makes a more promising investment proposition.

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Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
Centene Corporation (CNC) : Free Stock Analysis Report
Anthem, Inc. (ANTM) : Free Stock Analysis Report
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