Centene Corp (CNC, Financial) recently reported a daily gain of 1.59% and a 3-month gain of 3.28%. With an Earnings Per Share (EPS) (EPS) of 4.85, the question arises: is Centene (CNC) modestly undervalued? This article aims to answer that question by delving into an in-depth valuation analysis of the company. Let's explore.
Company Overview
Centene Corp is a prominent managed-care organization centered on government-sponsored healthcare plans, including Medicaid, Medicare, and individual exchanges. As of June 2023, Centene served 24 million medical members, primarily in Medicaid (67% of membership), individual exchanges (14%), and Medicare Advantage (6%) plans. The company also caters to traditional Medicare users with its Medicare Part D pharmaceutical program.
As of September 21, 2023, Centene's stock price stands at $69.16, while its intrinsic value (GF Value) is estimated at $90.35. This discrepancy suggests that the stock might be modestly undervalued. Here's a look at Centene's income breakdown:
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, the stock is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
With a current price of $69.16 per share and a market cap of $37.40 billion, Centene Corp appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Examining the financial strength of a company is crucial before investing. Companies with poor financial strength pose a higher risk of permanent loss. Factors like the cash-to-debt ratio and interest coverage offer insights into a company's financial strength. Centene's cash-to-debt ratio stands at 0.91, which is lower than 63.16% of the companies in the Healthcare Plans industry. The overall financial strength of Centene is 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies is generally less risky. Centene has been profitable 10 years over the past 10 years, with revenues of $147.90 billion and an EPS of $4.85 in the past 12 months. However, its operating margin of 2.36% is lower than 53.33% of the companies in the Healthcare Plans industry. Despite this, GuruFocus ranks Centene's profitability as strong.
Growth is a crucial factor in a company's valuation. Centene's 3-year average annual revenue growth is 11.8%, which is lower than 55.56% of the companies in the Healthcare Plans industry. The 3-year average EBITDA growth rate is 2.1%, ranking lower than 58.82% of the companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to determine its profitability. When the ROIC is higher than the WACC, the company is creating value for shareholders. For the past 12 months, Centene's ROIC stands at 3.67, while its cost of capital is 5.95.
Conclusion
In conclusion, Centene (CNC, Financial) appears to be modestly undervalued. While the company's financial condition is fair, its profitability is strong. However, its growth ranks lower than 58.82% of the companies in the Healthcare Plans industry. For more insights into Centene's stock, you can check its 30-Year Financials.
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