Centene Corporation

CNC Details

Centene Corporation (NYSE: CNC) is a healthcare organization focused on taking a local approach with homegrown brands and teams to provide cost-efficient services to government-sponsored and commercial healthcare programs, and operates in 2 segments, namely 1) Managed Care segment, which consists of health plans, including all of the functions needed to operate them, and 2) Specialty Services segment, offering supplementary healthcare products and services. As of June 04, 2021, the company’s market capitalization stood at USD 42.20 billion.

New Contract from Med-QUEST Division of Hawaii: On March 25, 2021, the company’s Hawaii subsidiary, Ohana Health Plan, was selected by the Hawaii Department of Human Services’ Med-QUEST Division to provide necessary medical and behavioral health services to members of Children's Health Insurance Program (CHIP). This new regional contract will begin on July 01, 2021 and will go on till December 31, 2026, with the option of three 12-month extensions.

Acquisition of Magellan Health: On January 04, 2021, CNC agreed to acquire Magellan Health, Inc., in an all-cash transaction valued at USD 2.2 billion on an enterprise value basis. Upon completion, CNC will establish one of the largest behavioral health platforms across 41.0 million unique members in the US. The transaction is expected to close in Q2FY21.

Combined Portfolio Offerings (Source: Investor Presentation, January 2021)

Q1FY21 Results: The company reported a 15.21% rise in total revenue to USD 29.98 billion in Q1FY21 (ending March 31, 2021) as compared to USD 26.03 billion in Q1FY20. The company’s Managed Care membership increased by 5.44% in Q1FY21 to 25.10 million vs 23.80 million in Q1FY20. Net income rose to USD 697.0 million in Q1FY21, 15.15x more than USD 46.0 million reported in Q1FY20.

Key Risks: A large portion of the company's business relates to the provision of managed care programs for individuals to benefit from government assistance programs. CNC offers these services under contracts with government organizations. If any of these contracts get terminated or if they do not get renewed on favorable terms, the company’s business and reputation could be materially affected. In addition, CNC derives a significant portion of its revenues from operations in a limited number of states, and a decrease in revenues or profitability in any of these states could negatively impact its financial position.

Outlook:

FY21 Guidance (Source: Q1FY21 Earnings Release, April 2021)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, 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)

Stock Recommendation: CNC fell 18.03% and 10.57% in the last 3 and 6 months, and is currently leaning towards the higher end of the 52-week range of USD 53.60 to USD 74.52. The stock is currently trading above its 200 DMA level. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 76.30. Considering the consistent increase in the stock price, market demand for pharmaceutical programs, and reasonable fundamental growth, we recommend a “Hold” rating on the stock at the closing price of USD 71.44, down by 1.34% as of June 04, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

USA Truck, Inc.

USAK Details

USA Truck, Inc. (NASDAQ: USAK) is engaged in transportation and logistics services. The company works in two segments, namely, 1) The Trucking segment, which consists of the company's truckload and provides steadfast shipping services, and 2) The USAT Logistics, which consists of freight, logistics, and rail intermodal services. As of May 3, 2021, the company's market capitalization stood at USD 144.08 million. As of June 04, 2021, the company’s market capitalization stood at USD 143.29 million.

SmartWay Transport Partnership Renewal: On March 23, 2021, the company announced the receipt of approval for its data submission to the SmartWay Transport Partnership, an innovative collaboration between the US Environmental Protection Agency (EPA) and the transportation industry. The partnership provides a framework to assess the environmental and energy efficiency of goods movement supply chains. The renewal demonstrates the company’s robust stewardship of its environmental and corporate responsibilities.

Q1FY21 Results: The company reported a 25.03% rise in net revenue to USD 158.51 million in Q1FY21 (ending March 31, 2021) as compared to USD 126.77 million in Q1FY20. Revenue from the Trucking segment accounted for 64.84% of the total revenue in Q1FY21. Net income for Q1FY21 was USD 3.60 million in Q1FY21, compared to a net loss of USD 2.55 million in Q1FY20.

Q1FY21 Revenue (Source: Earnings Presentation Q1FY21)

Key Risks: Diesel fuel is one of USAK’s main operating expenses, any shortage, change in price, or supply disruption in diesel fuel could materially affect its financial position. Moreover, a significant portion of USAK’s revenue comes from a few major customers and a substantial portion of its freight is derived from customers in the retail industry. As a result, the company’s revenue is largely dependent on consumer spending and retail sales and is susceptible to trends in unemployment and retail sales. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, 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.

USAK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: USAK increased by 78.57% and 32.80% in the last 6 and 9 months and is currently leaning towards the higher end of the 52-week range of USD 6.31 to USD 21.89. The stock is currently trading above its 200 DMA level. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 18.50. Considering the consistent increase in stock price, strong financial performance, and current trading levels, we recommend a “Hold” rating on the stock at the closing price of USD 15.75, down by 2.42% as of June 04, 2021.

* The reference data in this report has been partly sourced from REFINITIV.