Better Buy for 2022: Clover Health vs. Centene

The COVID-19 pandemic has highlighted the importance of healthcare plans. In addition, as the population is aging, the demand for healthcare plans is on the rise. Moreover, the 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. Furthermore, the emergence of advanced smartphone apps and new insurance schemes would contribute to the market’s growth in the near future. Therefore, both Clover Health Investments (CLOV)  and Centene (CNC) should benefit.

CLOV operates as a Medicare advantage insurer. Through its Clover Assistant, the company provides preferred provider organization and health maintenance organization health plans for medicare-eligible consumers.  CNC operates s a multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. The company offers its services through primary and specialty care physicians, hospitals, and ancillary providers. 

CLOV is down 51% in the past year and CNC is up 35%.  Which of these two stocks is a better buy now? Let’s find out.

Click here to checkout our Healthcare Sector Report for 2022

Latest Developments

On February 8, 2022, Michael F. Neidorff, Chairman and CEO of CNC, said, "As we look ahead, we are focused on advancing initiatives across the enterprise to deliver on our value creation goals and 2022 operational objectives."

On February 23, 2022, CLOV’s CEO Vivek Garipalli said, "This year, we are expecting significant growth in revenue and lives under management while at the same time we believe we are driving operating efficiencies and improved MCRs."

Recent Financial Results

CNC’s revenue increased 15% year-over-year to $32.60 billion for the fiscal fourth quarter ended December 31, 2021. The company’s adjusted net earnings came in at $598 million, representing a 48.1% year-over-year increase. Also, its adjusted EPS came in at $1.01, up 119.6% year-over-year.

CLOV’s revenues increased 159.9% year-over-year to $432 million for the fiscal fourth quarter ended December 31, 2021. However, its net loss grew 48.1% year-over-year to $187.20 million, while its adjusted EBITDA came in at $154.80 million, up 136.7% year-over-year.

Expected Financial Performance

CNC’s revenue and total assets grew at CAGRs of 27.8% and 36.4%, respectively, over the past three years. Analysts expect CNC’s revenue to increase 14.5% for the quarter ending June 30, 2022, and 8.6% in fiscal 2022. The company’s EPS is expected to grow 15.2% for the quarter ending June 30, 2022, and 3.9% in fiscal 2022. Moreover, its EPS is expected to grow at 10.7% per annum over the next five years.

On the other hand, CLOV’s revenue and total assets grew at CAGRs of 69.2% and 65.3%, respectively, over the past three years. The company’s revenue is expected to increase 293.2% for the quarter ending June 30, 2022, and 119.7% in fiscal 2022. Its EPS is expected to grow 71.8% for the quarter ending June 30, 2022, and 25% in fiscal 2022. Also, CLOV’s EPS is expected to grow at 18% per annum over the next five years.

Profitability

CNC’s trailing-12-month revenue of $118.18 billion is significantly higher than CLOV’s $1.36 billion. CNC is also more profitable, with a gross profit and EBITDA margin of 16.56% and 4.36%, respectively, compared to CLOV’s negative returns.

Furthermore, CNC’s ROE, ROA, and ROTC are 5.04%, 3.13%, and 4.90% compared to CLOV’s negative values, respectively.

Valuation

In terms of trailing-12-month P/S, CLOV is currently trading at 1.14x, 171.4% higher than CNC’s 0.42x. Moreover, CLOV’s trailing-12-month P/B ratio of 3.31x is 78.9% higher than CNC’s 1.85x.

So, CNC is relatively affordable here.

POWR Ratings

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

CNC has an A grade for Growth and a B grade for Sentiment, consistent with analysts’ expectations that its EPS will increase in the upcoming months. On the other hand, CLOV has a D grade for Growth and Sentiment, 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 1.66x, 51.7% lower than the industry average of 3.43x. However, CLOV has a C grade for Value, in sync with its forward P/B of 8.84x, 157.5% higher than the industry average of 3.43x.

Of the 11 stocks in the B-rated Medical - Health Insurance industry, CNC is ranked third. In comparison, CLOV is ranked last.

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

The Winner

As the demand for healthcare plans is expected to remain stable, both CNC and CLOV should benefit. However, it is better to bet on CNC now because of its robust financials, 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.

CLOV shares were unchanged in after-hours trading Thursday. Year-to-date, CLOV has declined -4.57%, versus a -4.61% 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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