Centene Corporation

CNC Details

Centene Corporation (NYSE: CNC) is a healthcare organization and its mission statement is to help people live healthier lives. To achieve its objective, the company takes a local approach with homegrown brands and teams to provide cost-efficient services to government-sponsored and commercial healthcare programs. The company operates in 2 segments namely, 1) Managed Care segment, which delivers healthcare treatment to individuals via government-subsidized programs like Medicaid, the State Children's Health Insurance Program (CHIP), Long-Term Services and Supports (LTSS), Foster Care, Medicare-Medicaid Plans (MMP), etc. 2) Specialty Services segment, offers supplementary healthcare products and services to state government programs, healthcare organizations, and other commercial organizations. As of April 30^th, 2021, the company’s market capitalization stood at USD 35.97 billion.

New Contract from Med-QUEST division (MQD) of Hawaii: As of March 25^th, 2021, the company announced that its Hawaii subsidiary ‘Ohana Health Plan’ was picked by the Med-QUEST division of the Hawaii Department of Human Services to provide necessary medical health services to members of Children’s Health Insurance Programs (CHIP) and to eligible Medicaid members. This new regional contract will begin on July 1^st, 2021 and it will go on till December 31^st, 2026 with the option of three, 12-months extension.

Q1FY21 Results: The company reported a 15.20% rise in total revenue to USD 29.98 billion in Q1FY21 (ending March 31, 2021) as compared to USD 26.02 billion in Q1FY20 (ending March 31, 2020). The company’s Managed Care membership increased by 5.44% to 25.09 million in Q1FY21 as compared to that of 23.80 million in Q1FY20. The company reported a massive increase in net income to USD 697,000 in Q1FY21 as compared to that of USD 46,000 in Q1FY20.

Key Risks: A large portion of the company's business relates to the provision of managed care programs under the government entitlement or assistance programs. The company provides these services under contracts with government organizations. If any of the company’s government contract gets terminated or does not get renewed on favorable terms or if the company fails to perform in accordance with the protocols set by the regulatory bodies, the reputation, as well as the business of the company, could be materially affected.

Outlook:

FY21 Guidelines (Source: Press Release, Q1FY21)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CNC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: CNC has already declined by 2.38% in the past 1 month and is currently leaning towards the mid-point of the 52-week range of USD 53.60 to USD 72.31. We have valued the stock using the EV/EBITDA based relative valuation methodology and arrived at a target price of USD 68.19. Considering the slight correction in the stock price in the past one-month, current market demand for the pharmaceutical programs, significant rise in government contracts, and reasonable fundamental growth, we recommend a “Buy” rating on the stock at the closing price of USD 61.74, up by 1.90% as of 30^th April 2021.