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Why Should You Hold Centene (CNC) in Your Portfolio Now?

Zacks Equity Research

Centene Corporation CNC is well-poised for development on the back of solid revenues and growth strategy.

The company has witnessed 2019 and 2020 earnings estimates move 1.9% and 1% north, respectively, over the past 30 days.

Centene also flaunts a commendable earnings surprise history, having outpaced the Zacks Consensus Estimate in the trailing four quarters, the average being 3.12%. This trend of consecutive estimate beats vouches for the company’s operating efficiency.

The company is well-placed for growth, evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Centene recently delivered solid first-quarter 2019 adjusted earnings per share of $1.39, beating the Zacks Consensus Estimate of $1.32 by 5.3%. The bottom line was also up 27.5% year over year. Total revenues jumped to $18.4 billion in the period from the year-ago figure on the back of Fidelis Care purchase, expansions and new programs across many states in 2018 and 2019 plus growth in the Health Insurance Marketplace business this year.

Following a robust first-quarter performance, Centene raised its 2019 outlook. It now expects total revenues in the band of $72.8-73.6 billion, up from the previous projection of $70.3-$71.1 billion. Adjusted EPS is predicted in the $4.24-$4.44 range, up from the earlier expectation of $4.11-$4.31. This raised guidance should instill investor confidence in the stock.

Moreover, the company has been witnessing a consistent rise in its top line since 2002. The metric saw a CAGR of 39.6% from 2012 to 2018, primarily attributable to membership growth, contract expansion and other such investments. The same again surged 40% year over year in the first quarter of 2019. We expect revenues to further shoot up going forward on the back of the company’s solid fundamentals.

Centene’s merger and acquisition strategy mainly targets market expansions and its Medicaid membership growth. The company is on track to acquire WellCare, which will leverage its position as the largest Medicaid managed care organization in the country. The deal will allow Centene to extend its footprint from 32 to 50 states. These acquisitions and partnerships should bolster the company’s operations and aid long-term growth.

However, the company has been grappling with escalating expenses since 2007. Increasing costs might weigh down the margins, which is a concern for the company.

The Zacks Consensus Estimate for current-year earnings per share is pegged at $4.38, indicating an increase of 23.7% on 21.9% higher revenues of $73.3 billion from the year-ago reported figures.

For 2020, the Zacks Consensus Estimate for earnings stands at $4.9 on $79.2 billion revenues, implying a respective 12.5% and 8.1% improvement from the prior-year reported numbers.

Shares of this Zacks Rank #3 (Hold) company have lost 6.4% in a year's time against its industry’s rise of 0.7%.



Stocks to Consider

Investors interested in the medical sector can take a look at some better-ranked stocks like The Joint Corp. JYNT, Molina Healthcare, Inc MOH andWellCare Health Plans, Inc. WCG.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Joint Corp. develops, owns, operates, supports and manages chiropractic clinics. In the last four quarters, the company delivered average beat of 190%. The stock sports a Zacks Rank #1.

Molina offers Medicaid-related solutions to meet the health care needs of low-income families and individuals. The stock carries a Zacks Rank of 1. In the trailing four quarters, the company came up with average beat of 88.17%.

WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 13.52% in the preceding four quarters. The stock has a Zacks Rank #2 (Buy).

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