1. Centene Corporation (NYSE:CNC)
P/E Ratio: 10.29
Centene Corporation (NYSE:CNC) is a multinational healthcare company specializing in health insurance and managed care services for government-sponsored programs like Medicaid, Medicare, and the Health Insurance Marketplace. It offers services such as managed care plans, pharmacy benefits management, telehealth, dental benefits, care management software, and home-based care. The company primarily serves state governments, individuals, families, employer groups, correctional facilities, and commercial organizations.
The Q3 results of Centene Corporation (NYSE:CNC) showed strong advancements in Medicaid stabilization, Medicare Star rating enhancement, and marketplace expansion. Additionally, the business is still on course to meet its annual objectives while setting itself up for long-term success. With an adjusted EPS of $1.62, the company’s Q3 2024 results are above forecasts thanks to advantageous tax timing. As redeterminations came to an end, the number of Medicaid members steadied at 13 million, with 30% of disenrolled people returning, despite short-term difficulties brought on by gaps. For investors looking at cheap healthcare stocks with solid growth potential, Centene Corporation (NYSE:CNC) offers a compelling choice. The second half of the year is expected to see rate increases of 4.5% to 5%, with the Medicaid Health Benefits Ratio (HBR) standing at 93.1%.
The percentage of participants in 2025 with a Medicare Star Rating of 3.5 or higher increased from 23% to 46%. In 2025, Medicare Advantage revenue is projected to be between $14 and $16 billion. With consistent margins anticipated, marketplace membership increased 22% year over year to 4.5 million. The corporation’s operational initiatives, such as AI for provider contracts, helped generate $36.9 billion in revenue in the third quarter. Lastly, Centene (NYSE:CNC) bought back $1.6 billion worth of shares despite the cash flow impacts of rate hikes.
Regarding Centene Corporation (NYSE:CNC), Oakmark Select Fund wrote the following in its investor letter for Q2 2024:
“Centene Corporation (NYSE:CNC) is one of the largest health insurers in the U.S. The company specializes in three major government-sponsored programs: Medicaid, Marketplace, and Medicare Advantage, each of which benefits from long-term secular tailwinds. In Medicaid, states are steadily outsourcing their programs to companies like Centene to reduce costs and improve care quality. Managed Medicaid penetration has increased throughout the past decade and we expect further gains over time. In Marketplace, growth is driven by the trend toward more individuals buying health insurance. Centene holds the #1 market share in both of these programs and is well-positioned to capitalize on their continued growth. Finally, we believe management is successfully turning around Centene’s Medicare business and expect the division to generate positive earnings over time. After adjusting for losses stemming from Centene’s Medicare business, we were able to purchase shares at a single-digit P/E multiple, which we think is too cheap for a leading, secularly growing Medicaid company and an improving Medicare business.”
Overall, CNC ranks first among the 12 cheap healthcare stocks to buy heading into 2025. While we acknowledge the potential of healthcare companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CNC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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