Centene Stock Faces Challenges Amid Medicaid Member Decline

A recent report highlights Centene's struggles as it revises down its Medicaid member estimates, impacting its stock performance. With rising medical costs and a volatile market, investors may find opportunities in Centene stock despite the challenges ahead.

Date: 10-09-2024

AI Rating: 5

Centene (CNC) stock has been affected by a downward revision of its estimated Medicaid members, which could lead to decreased premiums collected. Currently trading at $73, the stock is significantly below its pre-inflation peak of $97. The company has also demonstrated volatility in returns, with performances of 37% in 2021, 0% in 2022, and -10% in 2023. Recent changes indicate that health insurance stocks, including Centene, are struggling with rising medical costs; however, its medical cost ratio rose slightly to 87.3% compared to 87.0% last year.

Revenue Growth: Centene's revenues grew from $111 billion in 2020 to $154 billion in 2023, marking a significant increase due to acquisitions and higher Medicaid enrollments. This growth is a positive sign, but the forward-looking estimates are hampered by expected operational challenges.

Net Income: The reported earnings per share (EPS) increased from $3.12 in 2020 to $4.95 in 2023, which reflects solid profitability despite some declining margins.

Profit Margins: The operating margin has narrowed from 2.8% to 2.2%, suggesting a potential decline in profitability, which investors should monitor closely.

Free Cash Flow: Centene showcases a strong cash position with cash increasing from around $12 billion to $20 billion, along with $3 billion in cash flows from operations in the last year. This provides some liquidity cushion despite the existing debt of $18 billion.

Given the Fed’s potential rate cuts in 2024 aimed at combating inflation, Centene could see improvements if macroeconomic conditions stabilize. The rising medical costs, however, remain a risk factor that could limit future gains. The overall outlook presents both opportunities and risks for potential investors.

Stocks: CNC MOH