Centene

US15135B1017

CNC

CNC

In the ever-evolving landscape of the U.S. healthcare sector, Humana Inc. $HUM (-1.37%) and Centene Corporation $CNC (-1.3%) stand out as two prominent players, each with distinct business models and strategies. Humana focuses on providing a wide range of medical and supplemental insurance plans, primarily targeting individual and group markets, while Centene specializes in serving under-insured and uninsured populations through government-subsidized programs. This analysis delves into key financial metrics across various dimensions, including profitability, valuation, dividend yield, financial health, and growth potential, to provide insights into their operational effectiveness and investment attractiveness.

Estimated Reading Time: 5 minutes

Business Model Overview

Humana Inc.

Humana operates primarily as a health and well-being company, providing a range of medical and supplemental benefit plans. Its services are structured into three segments:

• Retail: Offers individual medical and supplemental plans, including Medicare Advantage and prescription drug plans.
• Group and Specialty: Provides commercial health insurance products, including dental and vision, along with administrative services for employer groups.
• Healthcare Services: Encompasses pharmacy solutions, provider services, and home health services.

Humana's contracts with the Centers for Medicare and Medicaid Services (CMS) allow it to manage various government-sponsored programs, enhancing its revenue through a diverse member base, which includes approximately 17 million members in medical benefit plans and 5 million in specialty products as of December 31, 2021.

Centene Corporation

Centene is a multi-national healthcare enterprise focused on providing services to under-insured and uninsured individuals. Its operations are divided into two main segments:

Managed Care: Offers health plan coverage through government-subsidized programs, including Medicaid and Medicare, targeting vulnerable populations.

• Specialty Services: Provides pharmacy benefits management, behavioral health services, and various healthcare services to government programs and commercial entities.

Centene emphasizes affordability and accessibility, leveraging a vast network of healthcare providers to deliver comprehensive services. The company has a significant presence across multiple states and serves millions through its various programs.

This structured analysis provides a clearer view of Humana and Centene's strengths and weaknesses across various financial dimensions:

• Profitability: Centene shows a slightly better net margin and EBITDA margin, indicating more efficient operations relative to its revenue. Additionally, Centene has demonstrated impressive EPS growth over the past three years, contrasting with Humana's decline.
• Valuation: Centene's lower P/E and EV/Sales ratios suggest it may be undervalued compared to Humana, making it potentially more attractive for value-focused investors.
• Dividend Yield: Humana provides a modest dividend yield, while Centene does not currently pay dividends, which may influence investor preferences.
• Financial Health: Centene has a stronger cash position and lower net debt, which enhances its financial flexibility.
• Growth Potential: Centene's higher revenue growth over the past five and ten years indicates a robust growth trajectory. Additionally, its long-term growth estimate is favorable compared to Humana's.

Overall, while Humana demonstrates solid profitability and a commitment to returning value to shareholders through dividends, Centene's operational efficiency, lower valuation metrics, and strong growth potential may present a more compelling investment opportunity for those looking for value and growth in the healthcare sector.

Centene Corporation $CNC (-1.3%) recently announced disappointing Medicaid membership projections for 2024, causing its stock to fall sharply. The company now expects around 13 million Medicaid members this year, down from its previous forecast of 13.6 million by the end of 2024. This drop in projected membership means Centene will collect less in premiums to cover the medical costs of its remaining Medicaid enrollees, putting pressure on the insurer's medical-loss ratio (MLR), a key metric that measures the percentage of premiums spent on medical care.

Despite this setback, Centene reported strong Q2 2024 results, with an adjusted diluted earnings per share (EPS) of $2.42, reflecting a 15% increase year-over-year. The company's marketplace segment, particularly Ambetter Health, showed impressive growth, helping to offset some challenges faced in the Medicaid sector. Looking ahead, Centene has raised its full-year premium and service revenue guidance by $5 billion, now projecting between $141 billion and $143 billion for the year. Total revenues are thus expected to be $155.0 billion to $157.0 billion. The company anticipates maintaining this growth trajectory, with adjusted EPS expected to exceed $6.80, supported by improving Medicaid rates and ongoing marketplace expansion.

However, the recent Medicaid membership announcement has raised concerns among investors about the company's ability to maintain profitability in the face of these challenges. Centene's CFO, Drew Asher, indicated that the company's Medicaid business will have a higher MLR in Q3 2024 compared to Q2, which could further impact financial performance.

If you currently hold Centene Corp in your portfolio, it's crucial to keep an eye on how the company addresses these challenges related to Medicaid membership and MLR. Given the risks associated with the company’s heavy reliance on government-sponsored programs like Medicaid, consider the following questions:

• How do you think Centene's management team will tackle these Medicaid membership and MLR challenges in the upcoming quarters?
• Will the strong performance in the marketplace segment be enough to offset the pressures in the Medicaid business?
• What do you believe the long-term implications of the recent announcements could be for Centene's overall financial health and growth strategy?

Your insights could provide valuable perspective on navigating these developments as Centene strives to balance its growth potential with the realities of its Medicaid business.