Centene Up More Than 80% This Year, Is Further Upside Left?

Centene Corp. (NYSE:CNC) , a health insurer, primarily dealing with government insurance products such as Medicare and Medicaid, seems to have caught investors’ attention in a highly unstable health care industry.

This is quite evident by its share price, which has rallied 82% so far this year compared with the industry’s growth of 42%. Its performance stands out when compared with other players, like Magellan Health, Inc. (NASDAQ:MGLN) which is up 30.4%, Wellcare Health Plans Inc. (NYSE:WCG) up 47% or Triple-S Management Corp. (NYSE:GTS) up 24.4%, in the same industry.

Here’s Why

Centene has witnessed a secular increase in its revenues over the past several years. This is led by a continuous surge in demand for its Medicaid plans as the government is increasingly outsourcing traditional Medicaid and shifting higher acute populations to managed care.

Its Medicare business which was already performing quite strongly got further boost from the Health Net acquisition (completed last year). The company is due to acquire Fidelis Care, another player in the Medicare business. Medicare remains a thriving business given its huge demand from the surging baby boomers population.

Centene has been able to make profits from its business in the Health Insurance Exchanges at a time when other players in the industry are either fleeing it or are making pricing adjustment to remain profitable.

The company’s strong guidance also favors investors. For 2018, Centene expects adjusted EPS in the range of $5.47-$5.87. This newly guided range is 4% higher than the midpoint of the range projected for the 2017 adjusted EPS. The company issued guidance for revenues in the band of $60-$60.8 billion. This is 26% higher than the midpoint of the range guided for 2017 revenues.

2018 Tailwinds

The company should be the net beneficiary of tax cuts under the tax reform. A rate cut to 20% from what the company currently pays (35%) should definitely flow through the bottom line.

The company’s expansion into nine additional state exchanges in 2018 should further broaden its revenues.

Further the acquisition of Fidelis, which is scheduled to close in the first quarter of 2018, should be accretive to the company’s earnings.

Continued growing demand for Medicare Advantage and Medicaid should support overall top-line growth.

Moreover, the company is attractively valued, which might give investors an impetus to invest in the stock despite its near-high price. It is currently trading at a 12-month forward price-to earnings ratio of 20.7, which is lower than the industry’s P/E ratio of 21.2.

Centene carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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