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Here's Why You Should Add Centene (CNC) to Your Portfolio

Zacks Equity Research

Estimates for Centene Corporation CNC have been revised upward over the past 30 days, reflecting analysts' optimism on the stock. The stock has seen the Zacks Consensus Estimate for 2019 and 2020 earnings move 1.4% and 1.1% north, respectively, over the same time frame.

Shares of this Zacks Rank #2 (Buy) company have rallied 26% in a year’s time, outperforming the industry’s growth of 20%.

The company flaunts a pleasant earnings surprise history, having outpaced the Zacks Consensus Estimate in all the trailing four reported quarters, the average being 5.05%. This trend of consecutive estimate beats corroborates the company’s operational excellence.

The company recently delivered its fourth-quarter 2018 adjusted earnings of $1.38 per share, beating the Zacks Consensus Estimate of $1.33 by 3.8%. Also, the bottom line improved 42.3% year over year.

For the fourth quarter, total revenues rose 29% to $16.6 billion from the year-ago period, primarily aided by a solid Health Insurance Marketplace business in 2018, purchase of Fidelis Care, expansions and new programs across many states in 2018 and reinstatement of the health insurer fee in the same period. The company has been witnessing consistent and significant revenue growth since 2002. The metric witnessed a CAGR of 39.6% from 2012 to 2018. In 2019, the company has plans to offer exchange products across 20 states. Also, a number of contracts won by the company in 2018 should favor Medicaid and Medicare revenues.

Centene has been expanding its capabilities and boosting its Medicaid membership through strategic initiatives such as mergers and acquisitions. Some of the significant buyouts include Health Net, Community Medical Holdings, MHM Services and Fidelis Care. Last July, the company entered into a joint venture with Ascension to establish a Medicare Advantage plan, which will be operational in multiple geographic markets beginning 2020. These acquisitions and partnership should bolster the company’s operations and aid long-term growth.

Medical membership of the company has been rising over the past several quarters owing to contract wins and expansion across different regions. In 2018, the metric rose 14.7% year over year. Given the constant expansion backed by inorganic growth of the company, membership of the company is likely to increase going forward.

The Zacks Consensus Estimate for current-year earnings per share is pegged at $4.23, representing a year-over-year increase of 19.5% on 17.8% higher revenues of $70.83 billion.

For 2020, the Zacks Consensus Estimate for earnings stands at $4.77, up 12.6% year over year on $76.7 billion revenues, which is further boosted by an 8.2% rise.

The expected long-term earnings growth rate is pegged at 13.3%, higher than the industry’s average of 12.8%, which is an upside for the company.

Other Stocks to Consider

Investors interested in the Medical-HMO industry can also check out some other top-ranked stocks like Anthem, Inc. ANTM, UnitedHealth Group Incorporated UNH and WellCare Health Plans, Inc. WCG. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

Anthem operates a health benefits company in the United States. The company sports a Zacks Rank #1 and came up with average four-quarter positive surprise of 7.04%.

UnitedHealth operates as a diversified health care company in the United States. It pulled off average four-quarter beat of 3.39% and carries a Zacks Rank of 2.

WellCare offers managed care services to government-sponsored health care programs. The company delivered average trailing four-quarter earnings surprise of 15.4% and is a Zacks #2 Ranked player.

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