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Why Centene Stock Was Up 19% in May

By Jason Hawthorne - Jun 7, 2021 at 5:42PM

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New executives and confirmation that an acquisition will close soon sparked a rally in the shares.

What happened

After falling almost 7% at the end of April, shares of health insurer Centene (NYSE:CNC) gained it all back and more in May. The stock climbed 19% during the month, according to data provided by S&P Global Market Intelligence.

A person explaining insurance forms to an older couple seated on a sofa.

Image source: Getty Images.

So what

When the company reported earnings last month, investors seemed disappointed with its medical loss ratio (the percentage of premiums collected that is spent on care). Wall Street quickly got over it, sending shares up throughout May as Centene made two executive announcements and confirmed that a big acquisition will soon close.

First, it appointed a new chief financial officer: Drew Asher, who joined Centene when it acquired WellCare at the beginning of 2020. He had served as that company's CFO for the previous six years and has 30 years of industry experience.

The second executive move was bringing in Suzy DePrizio as chief marketing officer. In her last role, she led the digital transformation for Johnson & Johnson where she was responsible for growing online sales.

Now what

To date, Centene's strategy has been to grow predominantly by acquiring other health plans and services. Buying behavioral health services provider Magellan Health for $2.2 billion in January signaled that this approach isn't likely to change soon. CEO Michael Neidorff confirmed during the month that the deal would close in the first half of the year.

For his part, Asher has already demonstrated the capability to identify targets and bring them into the fold. In 2020, one of Centene's largest acquisitions came from the specialty pharmacy business that he ran.

The move to hire DePrizio could address two areas of need. First, she brings experience in digitization and online sales. Those are not areas management has typically highlighted to investors. Second, despite being on the Fortune 500 list as the third largest insurer behind UnitedHealth Group and Anthem, its brand recognition is far behind those two. It's even below much smaller Humana.

That said, Centene is quietly pulling together a large, integrated healthcare enterprise. It isn't getting much credit from Wall Street. It has the lowest valuation based on price-to-sales, and price-to-book of the four insurers mentioned.

CNC PS Ratio Chart

CNC PS ratio data by YCharts.

If Centene can squeeze out the overlapping costs from the acquired businesses, it could deliver significant profits in the years ahead. If that happens, investors will likely bid the shares up to the valuation it is willing to pay for the other insurers.

Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Centene Corporation Stock Quote
Centene Corporation
$93.32 (0.29%) $0.27
Magellan Health, Inc. Stock Quote
Magellan Health, Inc.

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