Centene Corp (CNC, Financial) has recently seen a daily gain of 3.64%, culminating in a 3-month gain of 8.91%. The company's Earnings Per Share (EPS) stands at 4.45. Considering these figures, the question arises: Is the stock modestly undervalued? This article delves into a comprehensive valuation analysis to answer this question. We invite you to read on and gain valuable insights into Centene's financial health and performance.
Introduction to Centene Corp
Centene Corp is a managed-care organization with a focus on government-sponsored healthcare plans. As of June 2023, Centene served 24 million medical members, primarily in Medicaid (67% of membership), the individual exchanges (14%), and Medicare Advantage (6%) plans. The company also caters to traditional Medicare users with its Medicare Part D pharmaceutical program. With a current stock price of $71.84, Centene's market cap stands at $38.40 billion. The GF Value, an estimation of the stock's fair value, is $92.28, indicating that the stock may be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
Centene (CNC, Financial) stock gives every indication of being modestly undervalued based on the GuruFocus Value calculation. At its current price of $71.84 per share, Centene has a market cap of $38.40 billion, and the stock gives every indication of being modestly undervalued. Because Centene is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength of Centene
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Centene has a cash-to-debt ratio of 1.07, which is worse than 63.16% of 19 companies in the Healthcare Plans industry. The overall financial strength of Centene is 7 out of 10, which indicates that the financial strength of Centene is fair.
Profitability and Growth of Centene
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Centene has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $150.10 billion and Earnings Per Share (EPS) of $4.45. Its operating margin is 2.6%, which ranks worse than 53.33% of 15 companies in the Healthcare Plans industry. Overall, the profitability of Centene is ranked 8 out of 10, which indicates strong profitability.
Growth is probably one of the most important factors in the valuation of a company. Centene's 3-year average revenue growth rate is worse than 55.56% of 18 companies in the Healthcare Plans industry. Centene's 3-year average EBITDA growth rate is 2.1%, which ranks worse than 58.82% of 17 companies in the Healthcare Plans industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Centene's return on invested capital is 3.99, and its cost of capital is 5.94.
Conclusion
In summary, the stock of Centene gives every indication of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 58.82% of 17 companies in the Healthcare Plans industry. To learn more about Centene stock, you can check out 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.
