Centene Corporation (NYSE:CNC), a large-cap worth US$25b, comes to mind for investors seeking a strong and reliable stock investment. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, the key to their continued success lies in its financial health. Today we will look at Centene’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into CNC here.
How does CNC’s operating cash flow stack up against its debt?
CNC’s debt levels surged from US$4.8b to US$6.8b over the last 12 months – this includes long-term debt. With this rise in debt, CNC currently has US$6.1b remaining in cash and short-term investments for investing into the business. Moreover, CNC has generated cash from operations of US$1.2b during the same period of time, leading to an operating cash to total debt ratio of 18%, indicating that CNC’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CNC’s case, it is able to generate 0.18x cash from its debt capital.
Can CNC meet its short-term obligations with the cash in hand?
At the current liabilities level of US$12b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1x. For Healthcare companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CNC service its debt comfortably?
CNC is a relatively highly levered company with a debt-to-equity of 62%. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. We can assess the sustainability of CNC’s debt levels to the test by looking at how well interest payments are covered by earnings. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CNC’s case, the ratio of 6.22x suggests that interest is appropriately covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes CNC and other large-cap investments thought to be safe.
CNC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CNC has been performing in the past. You should continue to research Centene to get a better picture of the stock by looking at:
- 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.
- Valuation: What is CNC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CNC is currently mispriced by the market.
- 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.
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.
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