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Why Investing in Centene Makes Sense for Portfolio Boost

Centene Corporation CNC is well placed for growth on the back of increasing revenues and inorganic growth.

Estimates for the company have been revised upward over the past 30 days, reflecting brokers’ confidence in the stock. The stock has seen the Zacks Consensus Estimate for 2019 earnings move 0.2% north.

The company has retained investors' optimism by maintaining its positive surprise trend in three of the last four quarters, the average beat being 5.1%. This definitely vouches for the company’s operational excellence.

Centene is well-poised for growth, evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Centene has been consistently witnessing a significant level of 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 aid Medicaid and Medicare revenues.

On Apr 1, 2019, Centene’s unit — NH Healthy Families — has been selected by the New Hampshire Department of Health & Human Services to continue offering quality, coordinated healthcare to statewide enrollees under the New Hampshire Medicaid Care Management (MCM) program. We expect the company’s revenues to steadily rally going forward on the back of membership growth and the expansion of certain contracts.

Medical membership of the company has been rising over the last several quarters owing to contract wins and extension across different regions. In 2018, the metric rose 14.7% year over year.

The company’s merger and acquisitions strategy also deserves special mention. It mainly targets the company’s market expansions and higher Medicaid membership. In 2018, it acquired Community Medical Holdings, MHM Services and Fidelis Care. It also made an initial investment in the pharmacy benefit manager, RxAdvance. Last July, the company entered into a joint venture with Ascension to establish a Medicare Advantage plan, which will be operational across multiple geographies beginning 2020.

The company recently announced that it will purchase WellCare Health Plans, Inc. WCG for a total value of $17.3 billion per the terms of a definitive merger deal. This transaction, approved by the boards of both companies, will form a premier healthcare enterprise with its primary focus on the government-sponsored healthcare programs. Also, the new entity will likely emerge as a leader in the Medicaid, Medicare and Health Insurance Marketplace. The acquisition, subject to closing conditions, is expected to close in the first half of 2020. These buyouts and partnerships should bolster the company’s operations and aid long-term growth.

The Zacks Consensus Estimate for current-year earnings per share is pegged at $4.24, mirroring a year-over-year improvement of 19.8% on 17.9% higher revenues of $70.9 billion.

For 2020, the Zacks Consensus Estimate for earnings stands at $4.80 on $76.7 billion revenues, translating to respective 13.2% and 8.2% year-over-year growth.

Shares of this Zacks Rank #1 (Strong Buy) company have gained 9.3% in the past year, underperforming its industry’s growth of 12.5%.

Other Stocks to Consider

Investors interested in the medical sector can also take a look at some other top-ranked stocks like Anthem Inc ANTM and Molina Healthcare, Inc MOH, each carrying a Zacks Rank #2 (Buy). You can see _1link">the complete list of today’s Zacks #1 Rank stocks here.

Anthem and subsidiaries operate as a health benefits company in the United States.  In the last four quarters, the company came up with average positive surprise of 7.1%.

Molina offers Medicaid-related solutions to meet the health care needs of low-income families and individuals. In the trailing four quarters, the company delivered average beat of 109.41%.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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