CNC - Centene

[Cigarbutt]

A health insurer with a focus on the poorer segments of the population.

Have looked at the sector (oligopoly) for some time and trying the spot the winner(s).

 

Positives/moat:

-long operating history with profitable expansion and adaptation

-large but still room for further advantages of scale

-focus on relative niches in an overall large market

-very complex business, time to understand =)relatively high barrier to entry

 

Risks:

-regulatory risk especially with ongoing political debate about ACA and else

-capacity to “capture” profit may be seen as predatory

-relatively thin net margins

-recent large acquisitions and relatively high debt profile

-relatively high top exec compensation packages

-long term CEO is 74 and coming transition risk (vision and execution)

 

Potential for value:

It is estimated that a third of resources are allocated to unnecessary services and inefficient processes in healthcare (soon to be 20% of GDP). With predictive data analytics, there are so many opportunities for disruptive entrants. This could occur from firms like Amazon (think of their interest in pharmacies, Alexa and else) or could be developed in house by the health insurer. Centene may be well positioned as it has sufficient scale and seems to have developed an adequate blueprint to disrupt the supply chain logistics.

 

[Scuttlebutt Plunger]

At one of Centene's investor days management stated they 'aspire to be a technology company that offers health insurance.'  Not too far fetched.  They have sufficient capabilities with data analytics -- some platforms were from prior acquisitions.

 

Biggest risk to the risk: margin on the company's exchange book.  They're expanding their footprint next year and are one of the few companies that have been profitable on exchanges.

[Spekulatius]

Bought a few shares and might add more. Reasonably cheap at a ~11x PE and they gained quite a bit of scale and diversity with the WellCare and now Magellan merger.

Management comp is a bit on the rich side, imo.