NEW DIRECTIONAL CALL PLAYS
Centene Corp. - CNC - close: 83.72 change: +0.91
Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.2 million
Entry on September -- at $---.--
Listed on September 29, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
Managed healthcare companies are finally starting to reap the benefits of the Affordable Care Act. Shares of CNC have soared +40% in 2014 and ended today's session at another record high.
Who is CNC? According to a company press release, "Centene Corporation, a Fortune 500 company, is a leading multi-line healthcare enterprise that provides programs and services to government sponsored healthcare programs, focusing on under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children's Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and Long Term Care (LTC), in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans). The Company operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, care management software, correctional systems healthcare, in-home health services, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.
The Affordable Care Act could add up to seven million new healthcare clients to the system. That number is expected to surge to nearly 25 million new healthcare clients in the next decade.
At the same time there are 26 states expanding their Medicaid coverage.
Right now companies like CNC are in the sweet spot as more and more states turn over their Medicaid patients over to managed-care firms like CNC.
The IBD reports that CNC could see increased business from Texas, Michigan, South Carolina.
CNC has been consistently beating Wall Street's earnings estimates
(at least the last four quarters).
Their earnings report in April beat estimates on both the top and bottom line. They did it again in July with earnings and revenues coming above expectations. Management then raised their 2014 guidance.
Since that report FBR Capital has raised their price target on shares of CNC to $90 and Oppenheimer has raised their price target to $93.
The point & figure chart is even more bullish and forecasting a long-term $108 target.
We like the relative strength and the healthcare market trends certainly favor CNC. We're suggesting a trigger to buy calls at $84.05.
Trigger @ $84.05
- Suggested Positions -
Buy the NOV $85 call (CNC141122c85) current ask $3.50
Option Format: symbol-year-month-day-call-strike