Centene vs. Oscar: Which Healthcare Plan Stock is a Better Buy?

Centene Corporation (CNC) operates as a multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. The company provides its services through primary and specialty care physicians, hospitals, and ancillary providers. On the other hand, Oscar Health, Inc. (OSCR) provides health insurance products and services in the United States. The company offers Individual & Family, Small Group, and Medicare Advantage plans, as well as +Oscar, a full-stack technology platform.

With the resurgence of COVID-19 cases due to the rapid spread of the highly transmissible omicron variant of the coronavirus, the healthcare plan industry is expected to remain in the spotlight. Moreover, the healthcare plan industry is considered relatively stable in terms of performance, given an almost inelastic demand for healthcare plans, making it an investor favorite during volatile market conditions. Moreover, the emergence of state-of-the-art smartphone apps and new insurance schemes would contribute to the market’s growth in the near future. Therefore, both CNC and OSCR should benefit.

CNC has gained 10.7% over the past month, while OSCR has negative returns. Also, CNC’s 31.8% gains over the past nine months are significantly higher than OSCR’s negative returns. Moreover, CNC is the clear winner with 34.8% gains versus OSCR’s negative returns in terms of the past three months’ performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On October 4, 2021, CNC announced its plans to expand its Medicare Advantage offerings, offering its wide range of Medicare Advantage plans in 1,575 counties across 36 states during the 2022 Medicare Annual Enrollment Period. Rich Fisher, SVP and CEO of Medicare for Centene, said, "As our national footprint continues to grow, we are focused on creating one Medicare brand to better align with our strategy and goals."

A law firm is investigating OSCR and certain of its officers and/or directors on whether they have engaged in securities fraud or other unlawful business practices.

Recent Financial Results

CNC’s revenue increased 11% year-over-year to $32.40 billion for the fiscal third quarter ended September 30, 2021. The company’s adjusted net earnings came in at $745 million compared to $741 million in the prior-year quarter. Also, its adjusted EPS came in flat at $1.26.

OSCR’s revenues increased 336.6% year-over-year to $443.98 million for the fiscal third quarter ended September 30, 2021. However, its net loss grew 168.8% year-over-year to $212.75 million, while its loss per share came in at $1.02 compared to $2.72 in the prior-year quarter.

Expected Financial Performance

Analysts expect CNC’s revenue to increase 13.7% for the quarter ending March 31, 2022, and 13.4% in fiscal 2021. The company’s EPS is expected to grow 3.8% for the quarter ending March 31, 2022, and 7.1% in fiscal 2022. Moreover, its EPS is expected to grow at 10.8% per annum over the next five years.

On the other hand, OSCR’s revenue is expected to increase 28.6% for the quarter ending March 31, 2021, and 61.7% in fiscal 2021. Its EPS is expected to grow 72.5% for the quarter ending March 31, 2022, and 36.9% in fiscal 2022. Also, OSCR’s EPS is expected to grow at 15.1% per annum over the next five years.

Profitability

CNC’s trailing-12-month revenue of $114.13 billion is significantly higher than OSCR’s $1.44 billion. CNC is also more profitable with an EBITDA margin and levered FCF margin of 4.08% and 5.16%, respectively, compared to OSCR’s negative returns.

Furthermore, CNC’s ROE and ROTC are 2.76% and 4.31% compared to OSCR’s negative values.

Valuation

In terms of trailing-12-month P/S, OSCR is currently trading at 0.77x, 83.3% higher than CNC’s 0.42x. Moreover, OSCR’s trailing-12-month EV/S ratio of 0.56x is higher than CNC’s 0.51x.

So, CNC is relatively affordable here.

POWR Ratings

CNC has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, OSCR has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

CNC has a B grade for Growth, consistent with analysts’ expectations that its EPS will increase in the upcoming months. On the other hand, OSCR has a C grade for Growth, in sync with analysts’ expectations that its EPS will remain negative in the near term.

Also, CNC has a B grade for Value, consistent with its forward P/B of 1.77x, 53.6% lower than the industry average of 3.82x. However, OSCR has a C grade for Value, in sync with its forward P/B of 1.21x, 1.3% lower than the industry average of 1.23x.

Of the 12 stocks in the B-rated Medical - Health Insurance industry, CNC is ranked #4. In comparison, OSCR is ranked #11.

Beyond what I’ve stated above, we have also rated the stocks for Quality, Momentum, Stability, and Sentiment. Click here to view all the CNC ratings. Also, get all the OSCR ratings here.

The Winner

The healthcare plan industry is expected to grow with the increasing healthcare needs of an aging population. While both CNC and OSCR are expected to benefit, it is better to bet on CNC now because of its lower valuation and higher profitability.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Medical - Health Insurance industry here.

CNC shares were trading at $83.15 per share on Friday afternoon, up $0.15 (+0.18%). Year-to-date, CNC has gained 38.51%, versus a 24.80% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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