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** NEW ARTICLE** (MOTLEY FOOL . COM)
Centene's Clean Bill of Health
By Billy Fisher
February 7, 2007
Shares of Centene (NYSE: CNC) have fallen nearly 8% since the company released its Q4 results yesterday. I believe that this drop might present an opportune time for Fools to purchase shares of this multiline health-care company. Its latest earnings release raises a few red flags, but I think the positive trends in the company's business and the industry in general outweigh those negatives.
The St. Louis-based corporation reported a 44.8% growth in membership year over year, and a 64.8% increase in revenues. A new contract contributed significantly to these increases, letting the company expand its health-care services and benefits to Medicaid-eligible recipients in Georgia. Membership in the company's Georgia managed-care segment accounted for 80% of the year-over-year increase in membership growth.
The company did note that it was disappointed with the loss of its contract to serve the state of Kansas' Medicaid recipients, and it will also divest the assets of its Missouri health plan. But exiting these markets shouldn't significantly affect the company's total revenue going forward. Kansas and Missouri accounted for 14% of the company's revenues in 2006, but Centene will be able to compensate with the addition of its Georgia business and new contracts in Ohio and Texas.
The company reported EPS of $0.31, flat with the year-ago quarter. However, Centene's EPS would have come in at $0.41 if its Kansas and Missouri exit costs were excluded. The company expects minimal impairment charges related to these events in 2007; management guided for 2007 EPS between $1.51 and $1.61. This range is right in line with analysts' expectations of $1.54.
With the company's 2006 impairment charges in the rear-view mirror, the company is well-positioned for 2007. The stock prices of WellCare Health Plans (NYSE: WCG) and Amerigroup (NYSE: AGP) are both trading near 52-week highs. Both of these companies also focus their business on serving people who receive health-care benefits through publicly sponsored programs.
Centene is trading for roughly 20% less than its 52-week high. I think the depressed stock price offers a great buying opportunity with minimal risk involved, given the company's ability to grow its revenues and membership count.
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Fool contributor Billy Fisher does not own shares of any of the companies mentioned.