Centene Corporation

CNC Details

Centene Corporation (NYSE: CNC) is a multi-national healthcare company. It offers its services to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals. Its operating segments are 1) Managed Care segment, which provides health plan coverage to individuals, including all the functions needed to operate them, and 2) Specialty Services segment, which offers supplementary healthcare products and services. As of August 11, 2021, the company's market capitalization stood at USD 37.89 billion.

USD 1.8 Billion Notes Offering: On July 29, 2021, CNC priced a public offering of USD 1.8 billion aggregate principal amount of senior notes. The offering includes USD 500 million aggregate principal amount of 2.450% senior notes due 2028 and USD 1.3 billion aggregate principal amount of 2.625% senior notes due 2031. Bank of America, J.P. Morgan, Barclays, Truist Securities and Wells Fargo Securities are the joint book-running manager for the offering, which is expected to close by August 12, 2021. The proceeds of these notes, along with term loan and cash in hand, will be used to redeem outstanding 5.375% Senior 2026 Notes and for general corporate purposes.

Q2FY21 Results: The company reported an 11.96% rise in total revenue to USD 31.03 billion in Q2FY21 (ended June 30, 2021) compared to USD 27.71 billion in Q2FY20. Managed Care segment, which represented 95.37% of the total revenue in Q2FY21, increased 11.14% YoY. CNC reported a net loss of USD 535 million in Q2FY21 vs. a net profit of USD 1.20 billion in Q2FY20. As of June 30, 2021, the company's cash balance stood at USD 11.02 billion, with a total debt of USD 16.79 billion.

Key Risks:  CNC derives a significant portion of its revenues from operations in a limited number of states. Accordingly, any unfavorable changes in these states' economic, competitive, or regulatory environment could impair the company's financial performance. Furthermore, CNC operates in the healthcare industry and faces direct competition from more significant players with higher financial and operational resources at their disposal. In addition, the managed care industry and complementary industries have witnessed a lot of merger and acquisition activity. Should this industry consolidate further, it could impair the financial and operational performance of the company. 

Outlook: In FY21, CNC expects its total revenue to range between USD 123.3 – 125.3 billion, with a Health Benefit Ratio (HBR) to the tune of 87.5% – 88.1%. It also expects its GAAP diluted EPS to range between USD 1.82 – 2.06, along with an adjusted diluted EPS of USD 5.05 – 5.35.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CNC Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CNC's stock price has decreased by 7.38% and increased by 5.63% in the past three and six months, respectively, and is currently trading in the mid-band of its 52-week range of USD 53.60 to USD 75.59. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 26.03. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 71.01. Considering the slight movement in the stock price, improvement in the top-line, and positive outlook, we recommend a "Hold" rating on the stock at the closing price of USD 64.45 as of August 11, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV. 

Lumen Technologies, Inc.

LUMN Details

Lumen Technologies, Inc. (NYSE: LUMN) is an integrated communications company that provides an array of communications services to its residential and business customers. LUMN serves consumers in over 60 through its 450,000 route miles of fiber optic cable networks. As of June 30, 2021, LUMN serves 4.67 million broadband customers under the Mass Market segment. As of August 11, 2021, the company's market capitalization stood at USD 13.23 billion.

Series of Disinvestments: On August 03, 2021, LUMN signed a definitive agreement to sell its ILEC (incumbent local exchange carrier) business, including its consumer, small business, wholesale, and mainly copper served enterprise customers and assets, in 20 states to Apollo Global Management, Inc., for USD 7.5 billion along with USD 1.4 billion of debt and other working capital and purchase price adjustments, representing an EV/Adjusted EBITDA (FY20 Estimate) multiple of ~5.5x. The transaction is expected to close by H2FY22. 

On July 25, 2021, LUMN agreed to sell its Latin American business to Stonepeak, an alternative investment firm, for USD 2.7 billion, representing an EV/Adjusted EBITDA (FY20 Estimate) multiple of ~9x. The transaction will provide additional capital to LUMN to boost investment in key areas, reduce debt, and share repurchase purposes.

Enhancing Network Capacity & Consumer Experience: On July 29, 2021, LUMN launched its new on-net subsea fiber route between the US and France to cater to the increasing demand in cloud connectivity services and data caused by COVID-19. Previously, on July 23, 2021, it announced the expansion of its fiber network in Europe. The new infrastructure will enhance its service capabilities in France, Switzerland, and Spain and provide consumers with better broadband speed and connectivity.

Q2FY21 Results: The company reported a decline of 5.16% in operating revenue to USD 4.92 billion in Q2FY21 (ended June 30, 2021) compared to USD 5.19 billion in Q2FY20. Net income for Q2FY21 grew 34.32% YoY and stood at USD 506 million compared to USD 377 million in Q2FY20. As of June 30, 2021, the company's cash balance stood at USD 935 million, with a total debt of USD 31.17 billion. Effective August 03, 2021, LUMN authorized a 24-month program to repurchase USD 1.0 billion of its common shares in the open market or privately negotiated transactions.

Key Financial Metrics (Source: Q2FY21 Earnings Presentation, August 03, 2021)

Key Risks: LUMN operates in highly competitive communication industry. In recent years, aggressive price competition has pulled market prices for many of its products. Should this trend continue, it could harm the financials of the company. In addition, LUMN has assumed a significant amount of leverage, which may limit or restrict its ability to raise additional financing on acceptable terms.

Outlook:

Encouraging Outlook (Source: Q2FY21 Earnings Release, August 03, 2021)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LUMN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: LUMN's stock fell 11.11% in the past three months and is currently trading in the mid-band of its 52-week range of USD 8.51 to USD 16.60. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 45.03. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 15.44. Considering the correction in the stock price, strategic growth endeavors, improvement in long-term debt profile, and other associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 12.40 as of August 11, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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