Investment Case Update: May 5, 2025
Market capitalization: $29.8B
Enterprise value: $30.9B
Price: $59.85 (as of 4/30/25)
What the Company Does
Centene is a leading managed care provider in the United States, providing healthcare products and services to government-sponsored programs such as Medicaid and Medicare, as well as commercial programs (i.e. employer-sponsored health insurance). The company looks to serve underinsured and uninsured individuals in the US with its network of primary specialty care physicians and hospitals with the goal of keeping costs low and access to quality healthcare high. With nearly 28MM members, CNC serves approximately 1 out of every 15 individuals in the US. CNC is the top Medicaid managed care organization (MCO) in the US with roughly 13 million members enrolled as of 1Q25, representing roughly 17%1 of the total US Medicaid population, and also holds the top spot in the private health insurance marketplace.
Why We Own It
CNC offers strong growth prospects at a compelling valuation. Government-sponsored program spending is projected to grow 67% from 2024-2034, with Medicaid spending expected to grow at a nearly 5% CAGR (compound annual growth rate) to $1.0T over the same period.2 Although ongoing Medicaid eligibility redeterminations and emerging Marketplace subsidy eligibility headwinds are expected to pressure top and bottom-line results in the near term, these processes should ultimately establish a more solid foundation for future growth. Management still sees its Medicaid business growing at a 6-7% CAGR over the long-term (implying market share gains),3 with potentially inflecting near-term segment profitability, while the higher-margin Marketplace business is expected to grow in the mid-to-high single-digits over the long term despite an expected mid-teens headwind to enrollment this year. While CNC lags behind peers in Medicare membership, it has the largest concentration of dual-eligible4 special needs plans (DSNP) among its peers, with the added complexity of these products contributing to higher per member per month revenue relative to other plans.
Management is guiding for EPS (earnings per share) growth of 12-15% over the long term, outpacing top-line growth expectations of 7-8%, as management looks to rein in costs and grow its higher-margin segments to become a larger proportion of total revenue.3 Accordingly, CNC recently identified $3.60 of incremental Adjusted EPS opportunities beyond FY25’s expected EPS floor of $7.25 (~50% upside) from better execution within its existing businesses. Despite this robust long-term growth profile, shares are trading at just 7.5x 2026 EPS estimates,5 a level only seen during the depths of the global financial crisis, and a nearly 45% discount to peers (UNH, MOH, HUM, ELV).
How Management Allocates Capital
Management’s capital allocation priorities are 1) funding organic growth, 2) share repurchases, 3) maintaining a debt to Adjusted EBITDA leverage ratio of <3x (vs. 2.8x at end of 1Q25), and 4) Mergers and Acquisitions (M&A). If management executes on planned share repurchases of ~$2B in 2025, CNC will have bought back $9.9B worth of its stock between 2022-2025, amounting to ~33% of the company’s current market cap.