Leerink Partners Downgrades Centene (CNC) to Market Perform
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Leerink Partners downgraded Centene (NYSE: CNC) from Outperform to Market Perform and maintains a price target of $80.00.
Analyst Ana Gupte commented, "We are downgrading CNC from OP to MP while maintaining our PT at $80. Our downgrade is predicated on our view of below consensus EPS achievability in 2017 where we are lowering our EPS estimate by an incremental 9c to $4.56, below consensus of $4.87. Our 2017E EPS achievability already contemplated the downside of the HNT CA PPO substance abuse reimbursement issues in 2017. Our EPS lowering in 2017E by an incremental 9c further contemplates a mid-single-digit negative margin on the recently awarded MLTSS contract for the State of PA. Our recent discussions with senior Medicaid executives on our SoCal bus tour on Aug. 31 further diminish our confidence on the profitability of this contract both near and medium term. The absence of integration of Long-term care (LTSS) contracts combined with the ability to lower Acute Care spend as was originally contemplated in integrated Dual Eligible contracts is likely to remain an earnings headwind in our view. Further, margins in the core CNC Medicaid business look peakish and the phase out of 2Rs and exits in HIX in 2017 could also drive margin compression in the overall book of business across Medicaid and HIX. We expect that the planned Medicare Advantage (MA) expansion in 4 new states is likely to be at best breakeven in 2017E given the first year of participation. We lower our medium-term earnings growth expectation to 12% from 14%, with margin compression expected to offset incremental top-line growth from the PA win. Our PT of $80 contemplates a P/E multiple of ~15x on our FY18E EPS view of $5.33."
Shares of Centene closed at $68.62 yesterday.
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