CNC - Valens Credit Report - 2021 03 04
Cash bond markets are materially overstating credit risk, with a bond YTW of 2.804% relative to an Intrinsic YTW of 1.164%. Meanwhile, Moody's is overstating the firm's fundamental credit risk, with its non-investment grade Ba1 credit rating two notches lower than Valens' IG4 (Baa2) credit ratingIncentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management's compensation framework should drive them to focus heavily on margin expansion and revenue growth, which may lead to Uniform ROA improvement and higher cash flows available for servicing obligations, but may also encourage management to overleverage the balance sheet and overspend on assets in order to finance growth. In addition, management members are not wellcompensated in a change-in-control, indicating they are unlikely to pursue a sale or accept a buyout of the firm, limiting event risk. Furthermore, although most management members are not material holders of CNC equity relative to their annual compensation, CEO Neidorff's sizeable ownership indicates that he could influence other NEOs to align with shareholders for long-term value creation
Centene is an insurance holding company. The company's Managed Care segment provides health plan coverage to individuals through government subsidized programs. The company also provides a variety of individual, small group, and large group commercial healthcare products, both to employers and directly to members in the Managed Care segment. The company's Specialty Services segment consists of the company's specialty companies prviding healthcare services and products to state programs, correctional facilities, healthcare organizations, employer groups and other commercial organizations, as well as to its own subsidiaries. The Specialty Service segment also includes the Government Contracts business.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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