Does Centene Corporation’s (NYSE:CNC) 8.7% Earnings Growth Reflect The Long-Term Trend?

When Centene Corporation (NYSE:CNC) released its most recent earnings update (31 December 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Centene’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not CNC actually performed well. Below is a quick commentary on how I see CNC has performed.

Check out our latest analysis for Centene

Were CNC’s earnings stronger than its past performances and the industry?

CNC’s trailing twelve-month earnings (from 31 December 2018) of US$900m has increased by 8.7% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 36%, indicating the rate at which CNC is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s transpiring with margins and whether the entire industry is experiencing the hit as well.

NYSE:CNC Income Statement, March 14th 2019
NYSE:CNC Income Statement, March 14th 2019

In terms of returns from investment, Centene has fallen short of achieving a 20% return on equity (ROE), recording 8.1% instead. Furthermore, its return on assets (ROA) of 4.0% is below the US Healthcare industry of 7.0%, indicating Centene’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Centene’s debt level, has declined over the past 3 years from 20% to 11%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 54% to 62% over the past 5 years.

What does this mean?

Centene’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that have performed well in the past, such as Centene gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Centene to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CNC’s future growth? Take a look at our free research report of analyst consensus for CNC’s outlook.
  2. Financial Health: Are CNC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.