How High Could Centene Stock Go?

Centene Corporation (NYSE:CNC) has had a decidedly so-so year, down 2% when compared to the broader market’s 20% rise.

With a young Harvard-led CEO at the helm now, will the fortunes of this healthcare giant improve and, if so, by how much?

What Does Centene Do Exactly?

Centene provides various health insurance options that the government supports to over 28 million people, such as Medicaid and individual commercial coverage under the Affordable Care Act.

The company caught attention by reporting a second-quarter profit of $1.1 billion. This growth was supported by strong Obamacare registrations and premium revenues despite the decrease in Medicaid enrollment.

So how will it combat the slowdown in Medicaid?

Collaborative Health Systems, a business under Centene’s ownership, entered a fresh market in Virginia through the Chesapeake Independent Physician Association. This move doesn’t just widen Centene’s service area but also fortifies provider networks, which are important for continued expansion.

At the same time, Centene’s AcariaHealth is expanding its commercial dispensing and wholesale distribution business across the country.

By enhancing logistics capacities, Centene is aiming to provide better service and wider market coverage, which will continue to boost the growth of specialty pharmacy services.

In addition, Centene’s Wellcare and Wellvana forged a multi-year partnership to improve primary healthcare for Wellcare Medicare Advantage members throughout Georgia, Tennessee, and Texas.

The partnership is designed to make accessible care models centered on patients more appealing and serve a wider Medicare population. It should improve access to healthcare, strengthen Centene’s place in managed care and grow the business over time.

At the beginning of this year, Delaware First Health, a Centene subsidiary, also teamed up with Pyx Health, who are pioneers in social health platforms that use technology and peer support to tackle loneliness. This partnership is aimed at enhancing the well-being and involvement of its members.

This cooperation aims to use Pyx Health’s knowledge to improve managed care services at Centene. These include community health programs, which are important to sustaining growth.

So with all the new initiatives, what does it mean for the financials?

Top Line Growing Modestly

Over the past 12 quarters, revenues have climbed on a year-over-year basis in each and every quarter. With that said, the pace of growth has slowed somewhat.

In the fiscal second quarter of 2024, Centene’s net total revenues increased by 5.9% to $39.84 billion compared to last year.

Earnings from operations were up by 5% from the same period in the previous year, amounting to $1.23 billion.

The company’s adjusted net earnings and adjusted EPS rose by 11.1% and 15.2%, reaching $1.28 billion and $2.42, respectively.

The balance sheet looks pretty good too with management reporting $17.61 billion in cash and cash equivalents, compared to $17.19 billion on December 31, 2023.

When it comes to key statistics, Centene is coming up trumps. The company’s trailing-12-month EBIT margin is 70.7% higher than the industry average of 2.04% and the trailing-12-month levered FCF margin is 19.6% higher than the sector average of 1.15%.

So, can the good news continue?

What Does The Future Hold For Centene?

Management has confirmed 2024 GAAP diluted EPS guidance, saying it will be more than $5.94 per share while adjusted diluted EPS guidance will likely come in at $6.80, or above.

They have increased its 2024 premium and service revenues forecast by an additional $5.0 billion, now predicting between $141.0 billion and $143.0 billion in total revenue.

This change shows higher revenue hopes for the Commercial, Medicare, and Medicaid segments. $2.0 billion is expected for both commercial and Medicare premium revenue, and $1.0 billion is expected from Medicaid premium revenue.

Centene’s total revenue forecast has been revised for this year to be between $155.0 billion and $157.0 billion, showing that strong growth is anticipated.

Finally, they expect the 2024 Health Benefits Ratio to reach the higher end of the earlier predicted range, and come in at near 87.9%. These latest updates highlight how Centene manages finances carefully and look positively towards handling challenges in the healthcare field.

Centene’s Stock Price Prediction

Centene’s stock price prediction is $86.19 per share according to the consensus of 17 analysts.

That’s quite doable given that revenues have been on an upward trajectory to the tune of 9% over the last three years and is forecast to grow at 6.2% over the next 5 years.

Net income and EPS have also grown at CAGRs of 57.7% and 62.8%, respectively while EBITDA rose at a CAGR of 8.8% during this same time frame. Over the next 5 years, net income is expected to climb at a pace of 9.6% annually.

For the year, analysts forecast Centene’s revenue will be $153.57 billion and earnings per share are expected to be $6.83, an increase of around 2.2% compared to last year’s numbers.

In the bulls favor is the fact that every one of the last four quarters has surpassed revenue and EPS estimates.

For the next fiscal year ending December 2025, Centene’s revenue is estimated to rise by 3%, reaching $158.34 billion. Analysts expect earnings per share to increase by 9.7% compared to last year to $7.49.

Another plus in favor of the bulls is the non-GAAP price-to-earnings ratio sitting at just 10.76x, which means it’s 49.1% cheaper compared to the industry average of 21.14x.

The forward EV/Sales ratio is 0.25x, which is about 93.3% lower than the industry average of around 3.74x and the stock’s forward EV/EBITDA ratio of 8.72x is well below the sector average of 13.92x too.

Moreover, its forward Price/Sales ratio amounts to 0.25x compared with an industry mean of 3.87x, a difference reflected in its being lower by around 93.5%. Centene’s forward Price/Book sits at approximately 1.44x compared with the sector average of 3.06x.

It’s clear management sees value too and has initiated a share buyback program which should further support rising earnings per share over time.

With solid growth, momentum, profits and value on its side, Centene has all the hallmarks of becoming a long-term winner. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.