Cenene's (CNC) High RFP Success Rate Offsets Concern for 2016 Rate Compression - Wedbush

Wedbush analyst, Sarah James, sees Centene(NYSE: CNC) upside from the number of awarded Medicaid contracts and maintained her Outperform rating.

Consistent message from insurers on 2016 Medicaid rate pressure; CNC anticipates blended 1% in 2016 similar to 2015. They estimate this includes some positive items such as the inpatient and behavioral carve in on the MS and LA contracts, respectively, and FL rate increase from 9/15 as well as potential headwinds from other states. The fundamentals of rates have not been on the forefront of sentiment for several years as RFPs and implementations became the primary drivers but 2016 could see a brief shift back to basics before we move into the 2017/2018 contract cycle.

Centene has been awarded contracts to be implemented totaling an estimated ~$2.1-$2.9B in run-rate revenue or $0.29-$0.47 EPS which is currently highest among peers. This compares to United with $1.75-$2.4B ($0.02-$0.06), Anthem with $1.8-$2.2B ($0.07-$0.17) and Molina with currently no awarded contracts awaiting implementation.

Centene is already exceeding exchange enrollment growth internal expectations; Medicaid pure-plays are the only insurers to forecast growth and profit for the segment. This is likely due to the 90% exposure to subsidy eligible members which lessens the issue of outside OEP enrollment and the Medicaid-like network.

No change to Outperform rating, the PT of $80, represents a 13.6x multiple on 2017 EPS of $3.96.

For an analyst ratings summary and ratings history on Centene click here. For more ratings news on Centene click here.

Shares of Centene closed at $55.51 yesterday.

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