Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Crazy Stocks

Can Centene make money from Medicaid?

Centene Corp (NYSE: CNC) could make money from Medicaid expansion.

To explain, Centene (CNC) claims to be America’s largest Medicaid managed care organization. In addition, Centene claims to be the number one carrier in the Health Insurance Marketplace.

Notably, Centene claims to be a leader in Medicaid managed care in California, Florida, New York, and Texas, the nation’s four most populous states. Centene supports Medicaid services in 33 states.

How Big is Medicaid?

Medicaid is the largest health insurance program in America. estimates 76.302 million people were enrolled in Medicaid in June 2021.

To explain, Medicaid is America’s federal health insurance program for lower-income people. Unlike Medicare, the health insurance program for senior citizens, the states administer Medicaid.

Additionally, another 39.190 million Americans participate in CHIP, a federal health-insurance program for lower-income children. Like Medicaid, the states run CHIP.

Can Centene make money from Medicare and Medicaid?

Hence, Centene (NYSE: CNC) serves the largest segment of American health insurance, Medicaid. In particular, Centene serves almost one million Medicare beneficiaries though Medicare Advantage, Medicare Supplement, Special Needs, and Medicare-Medicaid (MMP) plans.

Interestingly, Centene claims to be one of the few companies to cash in on the Affordable Care Act (Obamacare). For example, Centene serves 2.2 million exchange members with Ambetter and other products.

Plus, Centene subsidiary Health Net Federal Services (HNFS) serves almost 2.9 million participants in the US Department of Defense’s TRICARE West Region. To explain, TRICARE is the Pentagon’s health insurance program for the military, military families, pensioners, reservists and National Guard members. Health Net claims to serve TRICARE beneficiaries in 21 states.

 Finally, Centene subsidiary Centurion provides health insurance for prisoners at correctional facilities in 15 states. Hence, Centene cashes in on America’s enormous prison population. Pew Research estimates America’s prisons and jails held 2.087 million people in 2020.

However, prisons are a shrinking industry. The number of US prisoners fell from a high of 2.3 million in 2008.

How Far Can Centene Grow?

I think Centene’s growth prospects are excellent because America’s population is getting older and poorer.

For example, Statista estimates the percentage of people over 65 in the US population will grow from 16.9% in 2020 to 20.6% in 2030, 21.68% in 2040, and 22% in 2050. Additionally, the real median personal annual income of the average American was $35,805 in 2020, the St. Louis Federal Reserve estimates. The real median personal income fell from $36,426 a year in 2019, but rose from $31,142 in 2010.

Consequently, I estimate most Americans are poor enough to participate in the Health Insurance Exchange or Medicaid. That is bad news for America but good news for Centene. Plus, two of ten Americans will be old enough to participate in Medicare by 2030.

Is Centene Corporation Making Money?

The Centene Corporation (CNC) can make money from Medicaid and Medicare. For instance, Centene reported a quarterly gross profit of $3.656 billion on 30 September 2021.

Similarly, Centene reported a quarterly operating income of $545 million on 30 September 2021. Conversely, Centene’s quarterly operating income can fluctuate. For instance, Centene reported a quarterly operating loss of -$418 million on 30 June 2021, down from $1.054 billion on 31 March 2021.

Impressively, Centene reported quarterly revenues of $32.405 billion on 30 September 2021. Thus, Centene can generate enormous revenues from Medicaid and Medicare.

How Much Cash Can Centene Generate?

Centene (CNC) can generate enormous amounts of cash. For example, it reported a quarterly operating cash flow of $1.802 billion on 30 September 2021. The quarterly operating cash flow rose from -$952 million on 30 September 2020 and fell from $2.981 billion on 31 December 2020.

Similarly, Centene reported a quarterly ending cash flow of $2.439 billion on 30 September 2021. The quarterly ending cash flow can be far higher. It was $10.304 billion on 31 March 2021, but fell to $891 million on 30 September 2021.

Conversely, Centene borrows enormous amounts of money. For instance, it reported a quarterly financing cash flow of $1.643 billion on 30 September 2021. Centene’s total debt rose from $18.113 billion on 30 June 2021 to $22.499 billion on 30 September 2021.

In contrast, Centene’s cash and short-term investments grew from $12.584 billion on 30 June 2021 to $14.94 billion on 30 September 2021.

Is Centene Corporation a Value Investment?

So Centene (CNC) has enormous amounts of revenue, cash, and profit, but is it a value investment?

I would say yes because Centene had $77.743 billion in Total Assets on 30 September 2021. Yet, Mr. Market paid $76.34 for Centene shares on 6 January 2022.

Centene’s value is growing. The total assets grew from $68.364 billion on 30 September 2020. Additionally, the stock value grew from $62 on 4 January 2021. I consider Centene a value investment because its value is growing, but its stock is cheap.

However, there are drawbacks to Centene as a stock. For example, it pays no dividends. Yet, I think Centene is a value investment in stock and health insurance.

Moreover, I think Centene is a company that can grow in bad economic times. To explain, much of Centene’s revenues come from the government as Medicaid, CHIP, and Medicare. Hence, Centene could have a guaranteed source of income.

To explain can always raise taxes or borrow money to finance its operations. To explain, I cannot imagine politicians not providing health insurance to 76.02 million Americans. Thus, I consider Centene a value investment and a safe stock.