Centene Corporation CNC has been suffering a setback from elevated expense level and poor solvency position.
The stock has witnessed its 2021 earnings estimate move 0.2% south over the past week.
The company’s earnings missed estimates in three of the trailing four quarters, beating the same in one.
What’s Bothering the Stock?
The health insurance company’s weak capital position continues to drag. Long-term debt at Centene has been rising since 2005, mainly because of the company’s acquisitions being financed majorly by borrowings. Its total debt reflects 39.4% of its capital, higher than the industry's average of 37.5%. Also, its time interest earned stands at 5.7X, much lower than the industry’s average of 12.3X. As of Sep 30, 2020, the company has cash and cash equivalents worth $12.1 billion, much lower than its long-term debt of $16.8 billion. The debt includes $93 million of borrowings under its revolving credit facility. This weak financial flexibility worries investors.
Also, the company has been witnessing steep operating expenses since 2007. Increase in operating expenses in 2018 and 2019 were almost same as the rise in revenues, mainly due to higher medical costs, selling, general and administrative (SG&A) expenses, amortization of acquired intangible assets and a premium tax expense. In the first nine months, the metric again soared almost 47% year over year. We expect this trend to continue due to the company’s heavy investments.
Its return on equity stands at 13.5% compared with its industry’s average of 24.5%, reflecting poor utilization of its shareholders’ funds.
Zacks Rank and Price Performance
Shares of this currently Zacks Rank #5 (Strong Sell) company have gained 8.4% in a year's time compared with the industry's growth of 16.6%.
This price performance looks tepid in comparison to some of its peers’ stock movements. For instance, Anthem, Inc. ANTM, Humana Inc. HUM and Molina Healthcare, Inc. MOH have rallied 14.2%, 21.5% and 16.6% each in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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