The stock market has been buoyed by steady growth from artificial intelligence (AI) lately, as evidenced by the reaction to Nvidia’s (NVDA) latest earnings report. But with corporate earnings season winding down and stock prices hovering near their highs ahead of a key payroll report next week, it’s not a bad time for investors to also remain open to defensive opportunities – stocks that offer good value, stable results across economic cycles and reliable demand.
With that in mind, it’s worth taking a closer look at names like Centene Corporation (CNC), a leader in the healthcare industry. While it’s not expected to deliver Magnificent Seven-style growth in the coming years, Centene is well positioned to benefit from industry shifts toward value-based care and digital transformation. In addition, the company recently beat its fourth-quarter earnings guidance and is expected to deliver steady gains in earnings and revenue going forward.
Here you can find out more about why CNC could be an interesting buying opportunity right now.
Centene beats expectations with fourth-quarter earnings
Centene, which has a market capitalization of $42.8 billion, is a provider of healthcare services through government-sponsored programs. The company operates in the managed care segment, which includes Medicaid, and the specialty services segment, which works with institutional and commercial customers.
Centene reported fourth-quarter 2023 results on February 6. Adjusted earnings per share of $0.45 beat analyst estimates, as did quarterly revenue of $39.46 billion. Premiums and service revenue totaled $35.3 billion during the period, contributing to annual revenue of $153 billion. For the full year 2023, the company reported adjusted earnings per share of $6.68, compared to $5.78 a year earlier.
For 2024, Centene still expects adjusted earnings per share of at least $6.70, but increased its forecast for 2024 premiums and service revenue by $2.5 billion to a range of $134.5 billion to $137.5 billion.
Centene also completed $1.6 billion in share repurchases in 2023, demonstrating its commitment to increasing shareholder value. Centene ended 2023 with $17 billion in cash and cash equivalents, enabling the company to pursue future investments and development opportunities.
CNC shares are up 7.4% year-to-date, right in line with the broader S&P 500 Index ($SPX).
However, the stock appears relatively cheap at current levels. CNC is valued at 11.83 times adjusted earnings per share and 0.29 times expected sales. In addition, the price-to-book ratio is 1.57 and the price-to-cash flow ratio is 10.68.
Not only are all of these valuation metrics well below the healthcare sector medians, they are also a discount to CNC’s 5-year averages. In other words, given the expected growth, the stock is a good value at current levels.
What do analysts expect for CNC?
Looking ahead, analysts expect CNC’s earnings per share to grow 1.29% to $6.77 in fiscal 2024, followed by stronger growth of 12.1% to $7.59 in fiscal 2025. Revenue is expected to decline about 5% this year before resuming growth in fiscal 2025, rising 4.79% to $152.68 billion.
Although the revenue forecast is rather modest compared to competitors in the healthcare sector, CNC is expected to deliver EPS growth that far exceeds its competitors.
Overall, analysts rate the stock a “Moderate Buy” based on 10 “Strong Buy” ratings and 7 “Hold” ratings from the 17 brokerage firms covered. That’s slightly more optimistic than 8 “Strong Buy” and 8 “Hold” ratings just three months ago.
The average price target for CNC is $88.53, which implies an expected upside potential of about 11% from current levels.
The conclusion for CNC bearings
Overall, CNC’s attractive valuation, strong results, and optimistic revenue forecast make it seem like a solid choice for investors looking to add some portfolio diversification and employ defensive strategies. While the stock may not offer the explosive upside potential of AI stocks, its relatively low volatility could prove to be another plus for Centene going forward.
On the date of publication, Faizan Farooque had no position (directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s disclosure policy here.
