Centene Gets Bullish Comments From Morgan Stanley Following Investor Day

Meetings with Centene Corp (NYSE: CNC) management in Asia and the June Investor Day boosted confidence in the stability of the HNT platform and the company’s long-term pipeline, Morgan Stanley’s Andrew Schenker said in a report. He upgraded the company from Equal-weight to Overweight, while raising the price target from $84 to $86.

HNT Integration On Track

Management reiterated that the HNT integration continued to be on track and there was visibility into first-year synergies. The company expressed confidence in being able to realize ~$200M in run-rate synergies. Centene may realize benefits from the system migration ahead of the planned HNT/Cognizant timeline, analyst Andrew Schenker mentioned.

These savings should result in continued margin expansion across the platform, with Centene leveraging its new size, scale and product mix. The analyst added, “Every 10bps change in pre-tax margin translates to an estimated ~$0.20 change in EPS.”

Management emphasized that its 14 percent topline growth guidance included known wins and that there is potential upside as the current RFPs materialize. Schenker believes the company would be able to bag the PA MLTSS contract, given its established presence in that state. “We have highlighted ~$20B RFP opportunities over the next few years, which could generate upside to our forecasts.”

LT RFP Pipeline Robust

Management identified a company-specific pipeline of $215B across its segments. “This represents $75B or ~55% higher than CNC's prior $140B projection, which we believe is largely driven by the addition of HNT,” the analyst commented. He added that the Medicaid opportunity was significant, with the state continuing to outsource its higher acuity populations.