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

Zacks Equity Research

Centene Corporation CNC is well-poised for growth on the back of solid revenue stream and acquisitions.

The company also boasts a stellar earnings surprise history, having outpaced the Zacks Consensus Estimate in all the trailing four quarters, the average being 4.5 %. Such consistency level vouches for the company’s operating efficiency.

The company is well-placed for growth, evident from its 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’s third-quarter 2019 adjusted earnings per share of 96 cents beat the Zacks Consensus Estimate by 1.1% and also improved 5.6% year over year owing to higher revenues.

Factors Favoring the Stock

It has been witnessing a rise in revenues over the past many years. This uptick is visible from its 2012-2018 CAGR of 39.6%. In the first nine months of 2019, the top line was up 28% year over year, backed by the Fidelis Care buyout, growth in the Health Insurance Marketplace business, expansions and new programs across several states in 2018 and 2019. The company now expects the metric in the $73.6-$74.2 billion range, the mid-point being 23.2%, which is above the reported figure of 2018.

Centene’s merger and acquisition strategy aims at boosting its markets and increasing its Medicaid membership. Certain consolidations like Community Medical Holdings, MHM Services and Fidelis Care contributed to revenues and helped the company gain in scale and size.

Moreover, it is set to acquire WellCare Health Plans, Inc. WCG, which is expected to close by the first half of 2020. The combined entity will gain a wider scale and diversification with more than 12 million Medicaid and around 5 million Medicare members. All these initiatives will likely bolster its operations and aid long-term growth.

Medical membership of the company has been rising over the past several quarters, courtesy of contract wins and expansion across different regions. In 2018 and the first nine months of 2019, the metric rose 14.7% and 6.1% each year over year. We expect the same to continue, banking on certain contract wins as well as the pending WellCare takeover.

The company’s bullish guidance should also retain investor confidence in the stock. Adjusted EPS for 2019 is expected in the band of $4.29-$4.49, the mid-point being 24% higher than last year’s reported number.

Shares of this Zacks Rank #3 (Hold) company have gained 4.9% year to date, underperforming its industry's growth of 12.6%.

Stocks to Consider

Investors interested in the medical sector might consider some better-ranked stocks like Select Medical Holdings Corporation SEM and Genesis Healthcare, Inc. GEN, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Select Medical Holdings operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics and occupational health centers. In the trailing four quarters, the company’s average beat was 11.1%.

Genesis Healthcare operates skilled nursing facilities and assisted living centers. In the last four quarters, the company delivered average beat of 80.9%.

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WellCare Health Plans, Inc. (WCG) : Free Stock Analysis Report
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