Centene stock (NYSE: CNC) currently trades at $66 per share, roughly 5% above its level in March 2021, and it has the potential for sizable gains. CNC saw its stock trading at around $85 in late June 2022, just before the Fed started increasing rates, and is now 22% below that level. The stock has lost 15% since September 2022 compared to the S&P 500, which gained about 21% during this period. CNC stock was performing well earlier this month, rising 12% from levels toward the end of May to June 13, before seeing a sharp decline on June 14, primarily due to UnitedHealth’s management stating that there is a rise in medical costs as more people are getting elective procedures done that were earlier postponed during the pandemic. This has impacted health insurance stocks at large.
Returning to the pre-inflation shock level means that CNC stock will have to gain 47% from here. While this may not happen anytime soon, CNC stock looks attractive from a valuation perspective and can see higher levels. It is trading at 0.3x trailing revenues, compared to its last five-year average of a little over 0.5x. Our Centene Valuation Ratios Comparison dashboard has more details.
Our detailed analysis of Centene’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.
2022 Inflation Shock
Timeline of Inflation Shock So Far:
- 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
- Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
- April 2021: Inflation rates cross 4% and increase rapidly.
- Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
- June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
- July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
- Since October 2022: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses.
In contrast, here’s how CNC stock and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
CNC and S&P 500 Performance During 2007-08 Crisis
CNC stock declined from $6 in August 2008 (its pre-crisis peak) to around $4 in March 2009 (as the markets bottomed out), implying that it lost over 25% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $5 in early 2010, rising nearly 25% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.
CNC Fundamentals Over Recent Years
CNC revenues rose from $70 billion in 2019 to $135 billion in 2022, primarily due to the acquisition of WellCare and higher enrollments in the Medicaid business.
Centene’s Revenue has gradually risen over the recent quarters, driven by membership growth, a trend expected to continue going forward. However, its operating margin has contracted from 2.5% in 2019 to 1.0% now, weighing on its bottom-line growth. Our Centene Operating Income Comparison dashboard has more details. Centene’s
CNC
Does CNC Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?
Centene’s total debt increased from $14 billion in 2019 to $18 billion in 2022, while its total cash increased from around $13 billion to $14 billion over the same period. The company garnered $6 billion in cash flows from operations in 2022. Given its cash position, Centene appears to be in a comfortable position to meet its near-term obligations.
Conclusion
With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe Centene stock has the potential for solid gains once fears of a potential recession are allayed. We believe that investors can use the current dip in CNC for strong gains in the long run. That said, any significant rise in medical costs due to the increase in elective procedures remains a risk factor for realizing these gains.
While CNC stock may see solid gains over time, it is helpful to see how Centene’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
With higher inflation and the Fed raising interest rates, among other factors, CNC stock has fallen 19% this year. Can it drop more? See how low CNC stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
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