On Monday, Wells Fargo adjusted its outlook on Centene Corporation (NYSE:CNC), a leading healthcare insurance provider, by increasing its price target to $93 from the previous $89 while reiterating an Overweight rating on the stock. The revision follows the announcement that Florida is set to grant Medicaid contracts to Centene and other health plans, a move that has been deemed particularly favorable for the company.
The updated price target reflects a positive shift in Centene's prospects, especially after a period of underwhelming Request for Proposal (RFP) outcomes. The award of the Medicaid contracts in Florida is seen as a significant turnaround, as prior to this, there was concern about Centene's competitive position in the state due to its high market share following the acquisition of WellCare Health Plans.
The Wells Fargo analyst noted that the market had likely already factored in the potential loss of half of the Florida contract, which would have affected approximately 3% of Centene's earnings per share (EPS). However, the securing of the contract is now viewed as an encouraging sign that could bolster confidence in the company's ability to improve its RFP performance going forward.
The new price target is based on a higher multiple of 12.5 times the projected 2025 earnings per share, up from the previous multiple of 12.0 times. This adjustment takes into account the Florida Medicaid contract, which is expected to contribute to around 12% of Centene's adjusted EPS for 2023. Additionally, Georgia remains the only significant RFP in the near term that Centene is awaiting.
The analyst also pointed out that while this development is a boon for Centene, it comes as a disappointment for Molina Healthcare (NYSE:MOH), which had anticipated share gains from the Florida Medicaid contracts. The outcome for Molina is less favorable given the expectations that were set prior to the contract announcements.
InvestingPro Insights
Centene Corporation's (NYSE:CNC) recent success in securing Medicaid contracts in Florida has been a positive catalyst, and a closer look at the real-time data from InvestingPro further illuminates the company's financial standing. With a market capitalization of $39.27 billion and a P/E ratio that has adjusted to 12.96 for the last twelve months as of Q4 2023, Centene exhibits a valuation that suggests room for growth when considering its near-term earnings potential. Additionally, the company's revenue growth of 3.87% over the last twelve months underscores a steady increase in its financial performance.
Among the InvestingPro Tips, it's noteworthy that management at Centene has been actively engaging in share buybacks, which often reflects confidence in the company's value and future prospects. Moreover, Centene is recognized as a prominent player in the Healthcare Providers & Services industry, which may provide a degree of stability and sector leadership.
For readers looking to delve deeper into Centene's potential and explore additional strategic insights, there are 12 more InvestingPro Tips available at https://www.investing.com/pro/CNC. These tips could offer valuable guidance on investment decisions, especially in light of the company's recent developments. To gain access to these insights, use the exclusive coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing your investment research with comprehensive analysis and advanced metrics.
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