Shares of Centene (CNC) jumped 2.0 % during today's afternoon session, bringing their 52 week performance to -15.0%. The stock seems to be fairly valued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's poor growth indicators and mixed market sentiment.
Centene Corporation operates as a healthcare enterprise that provides programs and services to under-insured and uninsured families, commercial organizations, and military families in the United States. The large-cap Health Care company is based in Saint Louis, United States and has 74,300 full time employees.
CNC's P/E Ratio Is Comparable to its Sector Average
Compared to the Health Care sector's average of 24.45, Centene has a trailing twelve month price to earnings (P/E) ratio of 25.4 and an expected P/E ratio of 10.3. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($2.71) or forward earnings per share ($6.69).
Earnings is another term for the net profits left over after subtracting cost of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Centene's P/E ratio is near its sector average of 24.45, we can deduce that the market is fairly valuing the company's earnings.
Centene Is Fairly Valued in Terms of Expected Growth
Another factor pointing to Centene's value is its PEG ratio of 0.91. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
CNC Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Centene, the P/B value is 1.52 while the average for the Health Care sector is 4.16.
CNC Is Generating Cash
Centene has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 43.3%, compared to 8.3% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 62.5% and a coefficient of variability of 57.3%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 6,261,000 | -1,004,000 | 5,257,000 | 59.54 |
| 2021-12-31 | 4,205,000 | -910,000 | 3,295,000 | -28.9 |
| 2020-12-31 | 5,503,000 | -869,000 | 4,634,000 | 515.41 |
| 2019-12-31 | 1,483,000 | -730,000 | 753,000 | n/a |
Centene's Is a Profitable Business
If you are looking to make CNC a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively Centene is run.
Centene's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 144,547,000 | 127,891,000 | 11.52 | 2.22 |
| 2021-12-31 | 125,982,000 | 111,783,000 | 11.27 | -17.68 |
| 2020-12-31 | 111,115,000 | 95,899,000 | 13.69 | 15.53 |
| 2019-12-31 | 74,639,000 | 65,796,000 | 11.85 | n/a |
Centene's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 144,547,000 | 13,020,000 | 2.52 | -2.7 |
| 2021-12-31 | 125,982,000 | 10,936,000 | 2.59 | -8.8 |
| 2020-12-31 | 111,115,000 | 12,062,000 | 2.84 | 3.27 |
| 2019-12-31 | 74,639,000 | 6,791,000 | 2.75 | n/a |
Centene's cost of revenue is growing at a rate of 18.1% in contrast to 17.7% for operating expenses. Sales revenues, on the other hand, have experienced a 18.0% growth rate. As a result, the average gross margins growth is -0.7 and the average operating margins growth rate is -2.2, with coefficients of variability of 9.1% and 5.5% respectively.
Centene Benefits From Positive Market Signals
The market sentiment regarding Centene is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $110.0 to $71.0. CNC is trading -18.95% away from its target price of $85.06. 1.4% of the company's shares are tied to short positions, and 97.3% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-03-31 | Vanguard Group, Inc. (The) | 12% | 64,207,122 | $4,426,439,147 |
| 2023-03-31 | Capital World Investors | 10% | 53,066,930 | $3,658,434,283 |
| 2023-03-31 | Blackrock Inc. | 7% | 39,453,095 | $2,719,896,465 |
| 2023-03-31 | FMR, LLC | 6% | 33,959,390 | $2,341,160,429 |
| 2023-03-31 | State Street Corporation | 4% | 23,355,511 | $1,610,128,985 |
| 2023-03-31 | Wellington Management Group, LLP | 4% | 20,841,828 | $1,436,835,673 |
| 2023-03-31 | Politan Capital Management LP | 2% | 13,384,380 | $922,719,189 |
| 2023-03-31 | JP Morgan Chase & Company | 2% | 11,888,024 | $819,560,403 |
| 2023-03-31 | Geode Capital Management, LLC | 2% | 9,875,788 | $680,836,848 |
| 2022-12-31 | Norges Bank Investment Management | 2% | 8,696,925 | $599,566,030 |
