The stock market has been fueled by a steady diet of artificial intelligence (AI)-fueled growth recently, as evidenced by the reaction to Nvidia's (NVDA) latest earnings report. But with corporate earnings season winding down, and stocks lingering near highs ahead of a critical payrolls report next week, it's not a bad time for investors to stay open to defensive opportunities, too - stocks that offer good value, steady results through economic cycles, and reliable demand.
Against this backdrop, 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 years ahead, Centene is well-positioned to benefit from industry shifts toward value-based care and digital transformation. Plus, the company recently delivered a Q4 earnings beat, and is expected to deliver steady gains in EPS and revenue going forward.
Here's a closer look at why CNC could be an intriguing value buy right now.
Centene Beats on Q4 Earnings
Valued at $42.8 billion by market cap, Centene is a provider of healthcare services via government-sponsored programs. It operates via the Managed Care segment, which includes Medicaid, and Specialty Services, which works with institutions and commercial customers.
Centene reported Q4 2023 earnings on Feb. 6. Adjusted EPS of $0.45 came in ahead of analysts' estimates, as did quarterly revenue of $39.46 billion. Premium and service revenues totaled $35.3 billion for the period, contributing to annual revenue of $153 billion. For the full year 2023, the firm reported adjusted profits per share of $6.68, compared to the previous year's $5.78.
For 2024, Centene still expects adjusted EPS of at least $6.70, but hiked its forecast for 2024 premium and service revenues by $2.5 billion to a range between $134.5 billion and $137.5 billion.
Centene also completed $1.6 billion in share buybacks during 2023, demonstrating a commitment to enhancing shareholder value. Centene closed out 2023 with $17 billion in cash and cash equivalents, enabling it to pursue future investments and development opportunities.
CNC stock is now up 7.4% on a YTD basis, right on pace with the broader S&P 500 Index ($SPX).
However, the stock looks relatively cheap at current levels. CNC is priced at 11.83x forward adjusted EPS, and 0.29x forward sales. Plus, the price/book ratio is 1.57, and price/cash flow checks in at 10.68.
Not only are all of these valuation metrics well below the healthcare sector median readings, they're also a discount to CNC's own 5-year averages. In other words, the stock is a good value at current levels, given its expected growth.
What Do Analysts Expect for CNC?
Looking ahead, analysts expect CNC's EPS to rise by 1.29% to $6.77 in fiscal year 2024, followed by a more robust 12.1% growth to $7.59 in fiscal 2025. Revenue is projected to decline about 5% this year, before returning to growth in fiscal 2025, up 4.79% to $152.68 billion.
While the revenue forecast looks relatively tepid compared to its healthcare sector peers, EPS growth at CNC is projected to outshine its rivals by a decent margin.
Overall, analysts rate the stock as a "Moderate Buy," based on 10 “Strong Buy” ratings and 7 “Holds” from the 17 brokerage firms in coverage. That's slightly more bullish than 8 “Strong Buys” and 8 “Holds” just three months ago.
The mean price target for CNC is $88.53, which implies expected upside of about 11% from current levels.
The Bottom Line for CNC Stock
Overall, based on its attractive valuation, strong bottom-line results, and upbeat revenue forecast, CNC looks like a solid pick for investors looking to add some diversity and defensive plays to their portfolios. While the stock may not offer the explosive upside potential of AI stocks, the relative lack of volatility may prove to be yet another point in Centene's favor going forward.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
