Rating Change #3
Centene Corporation (CNC) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.
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Highlights from the ratings report include:
- CNC's very impressive revenue growth greatly exceeded the industry average of 16.3%. Since the same quarter one year prior, revenues leaped by 54.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 233.95% to $42.99 million when compared to the same quarter last year. In addition, CENTENE CORP has also vastly surpassed the industry average cash flow growth rate of -22.04%.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- The current debt-to-equity ratio, 0.54, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.92 is somewhat weak and could be cause for future problems.
- CENTENE CORP's earnings per share declined by 6.7% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, CENTENE CORP reported lower earnings of $0.01 versus $2.12 in the prior year. This year, the market expects an improvement in earnings ($2.72 versus $0.01).
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