Centene Corp (CNC, Financial) experienced a daily loss of -3.4%, yet its 3-month performance shows a gain of 9.37%. With an Earnings Per Share (EPS) of 4.45, investors may question if Centene's current market valuation is justified. Is Centene modestly undervalued? The following analysis aims to shed light on this question, offering investors a detailed valuation perspective.
Centene Corp (CNC, Financial) is a managed-care organization primarily engaged with government-sponsored healthcare plans, including Medicaid, Medicare, and individual exchanges. With 24 million medical members as of June 2023, Centene's membership is largely comprised of Medicaid (67%), individual exchanges (14%), and Medicare Advantage (6%) plans. The company also caters to traditional Medicare users through its Medicare Part D pharmaceutical program. Given its current stock price of $70.48 and a GF Value of $92.4, there is an indication that Centene may be modestly undervalued. This valuation analysis will explore Centene's financials and intrinsic value in depth.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock, considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. When the stock price aligns significantly above the GF Value Line, it suggests overvaluation, potentially leading to poor future returns. Conversely, a price well below the GF Value Line could indicate undervaluation and the prospect of higher future returns. With Centene's share price at $70.48, our analysis suggests that the stock is modestly undervalued, hinting at a potential upside for long-term investors.
Because Centene is relatively undervalued, the long-term return of its stock is likely to exceed its business growth, presenting an attractive opportunity for value investors.These companies may deliver higher future returns at reduced risk.
Investing in companies with robust financial strength is crucial to minimize the risk of permanent capital loss. Centene's cash-to-debt ratio of 1.07, though lower than 57.89% of its peers in the Healthcare Plans industry, still reflects a fair financial position. GuruFocus ranks Centene's financial strength at 7 out of 10, indicating a stable financial footing for the company.
Profitability and Growth
Investing in profitable companies typically carries less risk, especially those with a history of consistent profitability. Centene has maintained profitability for 10 out of the past 10 years. With annual revenues of $150.10 billion and an Earnings Per Share (EPS) of $4.45, Centene's operating margin of 2.6% is lower than 53.33% of its industry counterparts. Despite this, GuruFocus ranks Centene's profitability as strong.
Growth is a critical indicator of a company's valuation. Centene's 3-year average annual revenue growth rate of 11.8% is below 55.56% of the companies in the Healthcare Plans industry. Moreover, its 3-year average EBITDA growth rate of 2.1% is lower than 58.82% of its industry rivals. This suggests that while Centene is profitable, its growth rate is not leading the industry.
ROIC vs. WACC
An effective way to gauge a company's profitability is by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). A ROIC that exceeds the WACC indicates that the company is generating value for shareholders. Centene's ROIC over the past 12 months stands at 3.99, which is below its WACC of 5.95, suggesting that the company may not be creating value at an optimal rate.
In conclusion, Centene (CNC, Financial) appears to be modestly undervalued. The company has a fair financial condition and strong profitability, although its growth ranks lower than many of its peers in the Healthcare Plans industry. For a more comprehensive understanding of Centene's financials, interested investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.