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Centene vs. Anthem: Which is a Better-Positioned Stock?
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The health insurance space is thriving with prospects as its companies are well-poised for growth on the back of mergers and acquisitions, demand for value-based care, complementary businesses, product modifications and improved services. The industry players are also making efforts to boost the telemedicine business lines. Most health insurers expect economic recovery in 2022. Other factors contributing to this upside are expansion of international operations, better claims handling, medical cost management, technological investment and upgrade plus solvency level.
The leading health insurers are benefiting from an increasing number of baby boomers as well as the usage of blockchain, AI, analytics and other technologies. This helped them drive efficiency, boost cybersecurity and enhance capabilities.
Performance of health insurance companies impressed investors in the first nine months of the year owing to premium rate increase, solid Medicaid and Medicare businesses and higher membership, attractive core business, state-based contracts, renewed agreements, expansion of service offerings, healthy balance sheets, etc. Despite the COVID-19 pandemic, the industry players have been capitalizing on virtual care offerings. Several companies, such as Molina Healthcare, Inc. (MOH - Free Report) and Select Medical Holdings Corporation (SEM - Free Report) raised 2021 outlook, concurrent with third-quarter 2021 results.
The industry is steadily gaining attention from investors owing to demand for value-based health plans.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of the companies with strong business fundamentals.
Against this backdrop, let’s look at the two leading health insurers, namely Centene Corporation (CNC - Free Report) and Anthem Inc. .
In the past year, Centene and Anthem have gained 42.9% and 46.2%, respectively. The industry has rallied 40% in the same time frame compared with the S&P 500 Index’s 29% increase.
Image Source: Zacks Investment Research
Now let’s analyze certain other parameters to find out which company is better placed.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Anthem’s bottom line managed to beat estimates in three of the trailing four quarters, missing the same in the remaining period, the average surprise being 4.7%. Centene’s earnings surpassed the consensus mark in one of the trailing four quarters, falling short of the same in the remaining three, the average miss being 3.17%. Here Anthem has an edge over Centene.
Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
Anthem’s ROE of 16.8% compares favorably with Centene’s ROE of 10.3%.
Valuation
Price-to-earnings value is one of the multiples used for valuing health insurers. Comparing favorably with the health insurance industry’s forward 12-month P/E ratio of 20.08, both Anthem and Centene are undervalued with a reading of 16.1 and 15.3 each. However, Centene has a better reading than Anthem’s.
Earnings Guidance
Earnings growth and stock price gains are often indicative of a company’s strong prospects.
The Zacks Consensus Estimate for Anthem’s 2021 earnings implies a 15.5% rise from the year-ago reported figure while that of Centene suggests an increase of 2.6% from the prior-year reported number.
Here Anthem has an edge over Centene in terms of yearly earnings growth.
Debt to Equity
Both companies have a higher debt-to-equity ratio than the industry average of 62.5X. However, Centene’s ratio of 70.9X is worse than Anthem’s leverage ratio of 63.1X. Therefore, Anthem is at an advantage over Centene on this front.
Bottomline
Our comparative analysis shows that Anthem is better-positioned than Centene in terms of earnings surprise, return on equity, leverage and earnings growth. However, Centene scores higher in terms of valuation. As the scale is tilted toward Anthem, the stock discernibly makes a more promising investment proposition.
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Centene vs. Anthem: Which is a Better-Positioned Stock?
The health insurance space is thriving with prospects as its companies are well-poised for growth on the back of mergers and acquisitions, demand for value-based care, complementary businesses, product modifications and improved services. The industry players are also making efforts to boost the telemedicine business lines. Most health insurers expect economic recovery in 2022. Other factors contributing to this upside are expansion of international operations, better claims handling, medical cost management, technological investment and upgrade plus solvency level.
The leading health insurers are benefiting from an increasing number of baby boomers as well as the usage of blockchain, AI, analytics and other technologies. This helped them drive efficiency, boost cybersecurity and enhance capabilities.
Performance of health insurance companies impressed investors in the first nine months of the year owing to premium rate increase, solid Medicaid and Medicare businesses and higher membership, attractive core business, state-based contracts, renewed agreements, expansion of service offerings, healthy balance sheets, etc. Despite the COVID-19 pandemic, the industry players have been capitalizing on virtual care offerings. Several companies, such as Molina Healthcare, Inc. (MOH - Free Report) and Select Medical Holdings Corporation (SEM - Free Report) raised 2021 outlook, concurrent with third-quarter 2021 results.
The industry is steadily gaining attention from investors owing to demand for value-based health plans.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of the companies with strong business fundamentals.
Against this backdrop, let’s look at the two leading health insurers, namely Centene Corporation (CNC - Free Report) and Anthem Inc. .
Each stock currently has a Zacks Rank #3 (Hold) and a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past year, Centene and Anthem have gained 42.9% and 46.2%, respectively. The industry has rallied 40% in the same time frame compared with the S&P 500 Index’s 29% increase.
Now let’s analyze certain other parameters to find out which company is better placed.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Anthem’s bottom line managed to beat estimates in three of the trailing four quarters, missing the same in the remaining period, the average surprise being 4.7%. Centene’s earnings surpassed the consensus mark in one of the trailing four quarters, falling short of the same in the remaining three, the average miss being 3.17%. Here Anthem has an edge over Centene.
Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
Anthem’s ROE of 16.8% compares favorably with Centene’s ROE of 10.3%.
Valuation
Price-to-earnings value is one of the multiples used for valuing health insurers. Comparing favorably with the health insurance industry’s forward 12-month P/E ratio of 20.08, both Anthem and Centene are undervalued with a reading of 16.1 and 15.3 each. However, Centene has a better reading than Anthem’s.
Earnings Guidance
Earnings growth and stock price gains are often indicative of a company’s strong prospects.
The Zacks Consensus Estimate for Anthem’s 2021 earnings implies a 15.5% rise from the year-ago reported figure while that of Centene suggests an increase of 2.6% from the prior-year reported number.
Here Anthem has an edge over Centene in terms of yearly earnings growth.
Debt to Equity
Both companies have a higher debt-to-equity ratio than the industry average of 62.5X. However, Centene’s ratio of 70.9X is worse than Anthem’s leverage ratio of 63.1X. Therefore, Anthem is at an advantage over Centene on this front.
Bottomline
Our comparative analysis shows that Anthem is better-positioned than Centene in terms of earnings surprise, return on equity, leverage and earnings growth. However, Centene scores higher in terms of valuation. As the scale is tilted toward Anthem, the stock discernibly makes a more promising investment proposition.