Credit Suisse Raises Price Target For Centene Corporation Following Investors Day

After the company’s Investors Day, Credit Suisse raised its price target for Centene Corporation CNC, from $102 to $118, maintaining an Outperform rating. This price target assumes that the stock can trade at ~20x the firm’s EPS estimate for 2016.

In its report, the research firm provided several reasons to believe that there is still some upside potential left, even in spite of the 72.7 percent increase it the stock price year-to-date, compared to MORGAN STANLEY HEALTHCARE PAYORS INDEX HMO’s 39.3 percent, and S&P 500’s 7.89 percent return.

Encouraged by better than expected guidance for 2015, Credit Suisse analysts believe that Centene is “somewhat de-risked for the next several months (until 1Q15 in April). Additionally, we see optionality on the M&A front from both a buyer's and a seller's perspective,” the report assured.

But, why is the guidance so reassuring? Well, for 2015, first time EPS guidance stands at $5.05-$5.35, versus Credit Suisse’s estimate of $5.10. This implies 32% top-line growth, “with premium & service revenues in the range of $20.3B to $20.8B.”

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In addition to the positive guidance, a strong, targeted pipeline and limited near-term RFP risks bode well for the months to come. Moreover, the research firm sees Centene “as a take-out candidate given the attractive long-term top-line growth opportunity. And while we think some take-out potential is already baked into shares, we can still get to upside in the stock using the ANTM/AGP forward revenue transaction multiple of ~0.45x (equates to ~$144/share). On the flip side, we think CNC is interested in getting into Medicare Advantage in a bigger way through M&A.”

On top of Credit Suisse, several other Wall Street firms are quite bullish on Centene as well. On Monday, Barclays reiterated its Overweight rating, and set a price target of $120, while Bank of America maintained a Buy, with a $120 price target, too.

Nonetheless, Jefferies is not as confident on the company’s future and issued (also on Monday) a Hold recommendation, accompanied by a $102 price target.