Centene Corp (CNC, Financial) has recently experienced a notable daily loss of 3.49%, contributing to a three-month decline of 6.97%. Despite these fluctuations, the company boasts a solid Earnings Per Share (EPS) of 5.03. This analysis delves into whether Centene, currently priced at $74.63, is modestly undervalued as suggested by the GF Value of $90.98.
Company Overview
Centene is a leading managed-care organization primarily engaged with government-sponsored healthcare plans such as Medicaid, Medicare, and individual exchanges. With a significant membership base of 24 million as of June 2023, the majority of which is in Medicaid (67%), Centene also plays a pivotal role in the individual exchanges (14%) and Medicare Advantage (6%) plans. The company's involvement extends to traditional Medicare users through its Medicare Part D pharmaceutical program. This comprehensive involvement in healthcare positions Centene at a critical junction of public and private sector healthcare services.
Understanding GF Value
The GF Value is a proprietary measure reflecting the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and expected future business performance. This valuation suggests that Centene's stock is currently trading below its fair value, indicating potential for future gains. The GF Value serves as a benchmark, suggesting that stocks priced significantly below this value may offer superior returns in the long run.
Financial Strength and Stability
Investors must consider a company's financial health to mitigate risks of capital loss. Centene's cash-to-debt ratio stands at 1.09, which is lower than 61.9% of its peers in the Healthcare Plans industry. This figure, along with a financial strength rating of 7 out of 10, suggests that Centene's financial situation is stable but warrants cautious optimism.
Profitability and Growth Prospects
Centene has demonstrated consistent profitability over the past decade, with a notable revenue of $155.50 billion over the last twelve months and an operating margin of 2.15%. These figures highlight the company's ability to maintain profitability despite competitive pressures in the healthcare industry. Furthermore, Centene's growth metrics, such as a 3-year average annual revenue growth rate of 13.7%, position it favorably against industry competitors.
Investment Considerations: ROIC and WACC
An essential aspect of assessing a company's profitability is comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Centene's ROIC stands at 3.81, below its WACC of 6.49, indicating that the company is currently generating a lower return on investment than the cost of its capital. This metric is crucial for investors considering the long-term value generation capacity of Centene.
Conclusion
Despite recent market downturns, Centene's strong fundamentals and modest undervaluation based on GF Value suggest potential for future growth. Investors should consider both the opportunities and risks presented by Centene's current financial health and market position. For a deeper dive into Centene's financials, visit Centene's 30-Year Financials.
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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.
