What is CNC's Intrinsic value?

Centene Corp (CNC) Intrinsic Value Analysis

Executive Summary

As of July 10, 2025, Centene Corp's estimated intrinsic value ranges from $41.81 to $190.31 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $190.31 +475.1%
Discounted Cash Flow (5Y) $73.22 +121.3%
Dividend Discount Model (Multi-Stage) $58.30 +76.2%
Dividend Discount Model (Stable) $54.84 +65.7%
Earnings Power Value $41.81 +26.3%

Is Centene Corp (CNC) undervalued or overvalued?

With the current market price at $33.09, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Centene Corp's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.56 0.9
Cost of equity 6.4% 9.9%
Cost of debt 5.0% 5.0%
Tax rate 25.8% 29.9%
Debt/Equity ratio 0.69 0.69
After-tax WACC 5.3% 7.3%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $111,115 (FY12-2020) to $393,001 (FY12-2030)
  • Net profit margin expansion from 2% to 2%
  • Capital expenditures maintained at approximately 1% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $73 $49,800M 84.6%
10-Year Growth $190 $118,030M 77.6%
5-Year EBITDA $108 $70,018M 89.1%
10-Year EBITDA $168 $104,942M 74.8%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.2%
  • Long-term growth rate: 1.0%
  • Fair value: $58.30 (76.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.9% (Low) to 6.4% (High)
  • Long-term growth rate: 0.5% (Low) to 1.5% (High)
  • Fair value range: $32 to $78
  • Selected fair value: $54.84 (65.7% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $1,870M
Discount Rate (WACC) 7.2% - 5.1%
Enterprise Value $25,966M - $37,020M
Net Debt $7,130M
Equity Value $18,836M - $29,890M
Outstanding Shares 583M
Fair Value $32 - $51
Selected Fair Value $41.81

Key Financial Metrics

Metric Value
Market Capitalization $26718M
Enterprise Value $30223M
Trailing P/E 7.74
Forward P/E 7.41
Trailing EV/EBITDA 8.55
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.69

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $57.09
Discounted Cash Flow (5Y) 25% $18.31
Dividend Discount Model (Multi-Stage) 20% $11.66
Dividend Discount Model (Stable) 15% $8.23
Earnings Power Value 10% $4.18
Weighted Average 100% $99.47

Investment Conclusion

Based on our comprehensive valuation analysis, Centene Corp's intrinsic value is $99.47, which is approximately 200.6% above the current market price of $33.09.

Key investment considerations:

  • Strong projected earnings growth (2% to 2% margin)
  • Consistent cash flow generation

Given these factors, we believe Centene Corp is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.