UBS Cuts Price Target as Centene (CNC) Shares Weaken Following 2016 Presidential Election
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UBS maintained a Buy rating on Centene (NYSE: CNC), and cut the price target to $73.00 (from $80.00), as shares weaken due to uncertainty following the 2016 election. CNC shares declined more than 19% on Wednesday. Based on previous public comments by Congressional leaders, such as House Speaker Paul Ryan, alternative coverage options need to be provided to those potentially losing their Medicaid expansion or marketplace health care in the event of any repeal and replace.
Analyst A.J. Rice commented, "Post the 2016 election, CNC shares declined more than 19% on Wednesday. CNC is the only MCO which still has a profitable public exchange book in 2016. In fact, CNC currently enrols roughly 583K HIX lives, which we estimate contributes roughly $2.5 bln in annual revenue to the company. Likewise, CNC has 1.05 mln lives under Medicaid expansion, which we estimate represents roughly $5 bln in annual revenue. Assuming a blended pre-tax margin 3.5-4.5% on this combined $7.5 bln annual revenue and a 40-45% tax rate, we estimate the annual EPS impact for CNC at roughly $0.80-$1.00 (or roughly 17-21% of our 2017 EPS estimate). A 19% decline for CNC shares on Wednesday seems to already reflect the worst-case scenario with respect to the company's ACA exposure. We see weakness in CNC shares as a buying opportunity."
Shares of Centene closed at $54.05 yesterday.
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