Centene- A 5-Star Buy In Healthcare Management

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Centene Corporation (CNC) carries CFRA's highest investment recommendation of 5-stars, or Strong Buy. 

With its history of value-added acquisitions, strategic cost containment investments, and a favorable environment for Medicaid insurers, we think CNC will produce EPS growth above the peer average in the years ahead.

Centene provides health plans and related health care management services with a focus on under-insured and uninsured individuals. The company's largest membership populations are government-sponsored programs, particularly Medicaid, which generated 53% of CNC's medical membership and 67% of operating revenue in 2020.

CNC also offers private individual and small business health insurance, primarily through the Health Insurance Marketplaces (10% of membership, 15% of operating revenue).

CFRA thinks Centene continues to be well positioned for solid growth with its recent acquisitions. In January 2020, CNC acquired Medicaid competitor WellCare.

The transaction made CNC the fourth largest health plan provider in the U.S., with 2020 revenue of $111 billion, and by far the largest Medicaid insurer with 13.6 million members, 1.5x the Medicaid membership of second place Anthem (ANTM).

In addition, CNC recently announced two strategic acquisitions: pharmacy chain PANTHERx, specializing in orphan drugs and rare diseases (December 2020), and Magellan Health (January 2021), which will considerably increase CNC's behavioral health capabilities.

CFRA thinks the Magellan acquisition will create one of the largest behavioral health platforms in the U.S. The acquisition is expected to bring 5.5 million new members on government-sponsored plans, 2 million pharmacy benefit manager (PBM) members, and 16 million medical pharmacy members, significantly increasing Centene's scale and reach, in our view.

CNC has a successful track record of expanding membership both organically and through M&A. In 2016, CNC acquired Health Net, which more than doubled total membership and led to annual EPS gains of over 30% for two years.

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