When Centene Corp. (CNC, Financial) announced the acquisition of Magellan Health Inc. (MGLN, Financial) on Jan. 7, one line in the news release must have been music to investors' ears. The deal, Centene said, will create shareholder value through cost synergies and new growth opportunities.
One week later, it already has. The stock of the St. Louis-based health insurer is up more than 11% to just under $69. But the company still has ground to make up if it's going to match the one-year gains of the other industry leaders: UnitedHealth Group Inc. (UNH, Financial), up 20%, Humana Inc. (HUM, Financial), up nearly 17%, and Anthem Inc. (ANTM, Financial), up about 13%. With the latest surge, Centene joined Cigna Corp. (CI, Financial) with a share-price increase of about 6.6% over the past 12 months.
Centene projects the Magellan transaction to be somewhat accretive in the first full year and deliver low to mid-single-digit percent adjusted earnings per share accretion by the second full year, when it also expects to achieve nearly $50 million in annual net cost synergies. That's in addition to a $75 million cost-cutting program already underway at Magellan.
The company is paying $2.2 billion, or $95 a share, for Phoenix-based Magellan. That's about a 16% premium over what Magellan was trading for when the deal was announced. Magellan will operate independently and help make Centene one of the country's largest behavioral health businesses, serving more than 40 million members, said the company. The deal also boosts Centene's already established footprint in government-sponsored health plans with the addition of 5.5 million lives and another 2.2 million to add to its pharmacy benefit management platform. The deal is expected to be finalized in the second half of the year.
With Magellan under its wing, Centene will be more able to market a "whole health" approach for its members, according to an article in Healthcare Dive. The company said the Covid-19 pandemic has highlighted the need to address clients' mental health needs as cases have risen dramatically during the pandemic.
Centene has been hot on the acquisition trail. Last year, the company closed a $17 billion purchase of competitor WellCare that made it the fourth-largest insurer by membership. Before that, the company paid $4 billion for Fidelis Care in New York, propelling it into the second-biggest managed care market in the country. And in 2016, Centene completed its acquisition of California-based Health Net, which the company said made it the largest Medicaid managed care company in the country.
The company recently said 2021 revenues are expected in the range of $114.1 billion to $116.1 billion, with adjusted earnings in the range of $5 to $5.30 per share. The Zacks consensus estimate for the same period is $5.40 per share, reported AOL.
CNN Business reported that the 17 analysts offering 12-month price forecasts for Centene set a median target of $80, with a high estimate of $102 and a low estimate of $69. The stock is rated a buy.
Disclosure: The author holds no positions in any of the stocks mentioned in this article.
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