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Centene Corp (CNC) has been a standout performer in the Medical Care Group with a focus on individuals receiving benefits under Medicaid. It was cruising along near 52-week highs until July 2nd when they announced a takeover bid for Health Net (HNT) that gets them into the fast growing Medicare market as well. Barclays lowered their rating after the merger was announced which caused the stock to sell down to $67.09 last week from a recent high of $83. However both Wells Fargo and FBR Capital subsequently upgraded their ratings for CNC to buy, along with FBR increasing their target price to $90 from $80.
The merger positions CNC in the very strong California Medicare market and additional costs savings of $150 million are expected. Overall this looks like a favorable acquisition for Centene.
CNC, which has been outperforming the market and the Health Care sector for over 12 months, was severely punished for what analysts deem to be a very attractive acquisition. After the acquisition was announced it finished the day down 8% and sold of a total of 20% from its previous peak. This sell-off and the subsequent reversal presents investors with an attractive buying opportunity.
The deal is expected to close in the first half of 2016 and add 10% to earnings. Current analyst estimates, before the merger was announced, are $2.78 in 2015, a 25% increase over last year and $3.27 next year. Analysts should begin raising next year’s estimates for CNC.
Centene will have 6 million members and $37 billion in revenue when the deal is completed and is one of only 3 publicly traded companies focused solely on Medicaid insurance. This could also make CNC a takeover candidate down the road as Medicare Advantage plans have tripled in the past ten years to 16.8 people and are expected to continue growing as more baby boomers become eligible for these plans.
Centene has a Very Bullish Chaikin Power Gauge stock rating that is driven by a very strong Earnings component, as well as Very Bullish Financial Metrics. CNC is in the very strong Health Care Sector that has been leading the market higher.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
