CNC - Valens Credit Report - 2021 05 17
Credit markets are accurately stating CNC's credit risk with a YTW of 1.928% and CDS of 125bps relative to an Intrinsic YTW of 1.658% and Intrinsic CDS of 89bps. Meanwhile, Moody's is materially overstating the firm's fundamental credit risk, with its non-investment grade Ba1 credit rating five notches lower than Valens' IG3 (A2) 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. In addition, management members are not well-compensated in a change-in-control scenario, indicating they are unlikely to pursue a sale or accept a buyout of the firm, limiting event risk. Furthermore, management members are material holders of CNC equity relative to their annual compensation, indicating they should be aligned with shareholders for long-term value creation
Earnings Call Forensics™ of the firm's Q1 2021 earnings call (4/27) highlights that management is confident their Medicare Advantage performance will give them room for margin expansion, that the business will experience tailwinds for the remainder of 2021, and that the Oklahoma contract win for the Medicare business will drive further growth. In addition, they are confident state rate and risk-sharing mechanisms will positively impact revenue and that nothing unusual is happening with prior year claims development (PYD)
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.