We think that Action Centene (NYSE: CNC) is currently a better choice over the pharmaceutical barometer Johnson & Johnson Stocks (NYSE: JNJ), given Centene
If we look at stock returns, Centene’s 20% growth is much better than J&J’s 5% rise over the past twelve months. This compares to a -4% change in the broader S&P 500 index. While both companies are expected to experience continued revenue expansion, Centene is expected to outperform. There’s more to the comparison, and in the sections below, we explain why we believe CNC stocks will outperform JNJ stocks over the next three years. We compare a host of factors such as historical revenue growth, returns and valuation multiple in an interactive dashboard analysis of Johnson & Johnson vs. Centene: Which stock is a better bet? Parts of the analysis are summarized below.
1. Centene’s revenue growth has been stronger in recent years
- J&J sales grew 15% to $93.8 billion in 2021 from $81.6 billion in 2018, while Centene sales doubled to $126 billion in 2021, compared to $60.1 billion in 2018.
- While J&J’s medical device business faced headwinds in 2020 due to the impact of the pandemic, it rebounded in 2021.
- The company’s pharmaceuticals business is experiencing strong growth driven by market share gains for its cancer drugs, Imbruvica and Darzalex, and immunology drugs, Stelara and Tremfya.
- Centene saw its revenue grow sharply in 2020, primarily due to the acquisition of WellCare, as well as an increase in enrollments in the Medicaid business.
- Late last year, Centene announced its portfolio optimization plans. The company will review the sale of its international activities to focus on its core business. It also said it plans to increase share buybacks from 2022, helping its stock price grow.
- Our Johnson & Johnson revenue and Centene Turnover dashboards provide more information about business sales.
- Going forward, Centene’s revenue is expected to grow faster than J&J’s over the next three years. The table below summarizes our revenue forecasts for both companies over the next three years. It shows a CAGR of 16% for Centene, compared to a CAGR of 5% for J&J, based on Trefis Machine Learning analysis.
- Note that we have different methodologies for businesses that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenue. For businesses negatively impacted by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery at the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed for the three years preceding Covid to simulate a return to normal conditions. For companies with positive revenue growth during Covid, we consider pre-Covid average annual growth with some growth weight during Covid and past twelve months.
2. J&J is more profitable and its leverage is better
- J&J’s operating margin of 16.7% over the last twelve months is well above Centene’s 1.8%.
- This compares to the figures of 24.1% and 2.3% seen in 2019, before the pandemic, respectively.
- J&J’s operating profit increased 13% to $23.6 billion in 2021 from $20.8 billion in 2018, while Centene’s decreased 6% to $1.7 billion. dollars in 2021, compared to $1.8 billion in 2019.
- J&J’s free cash flow margin of 20% is greater than 3% for Centene.
- Our Johnson & Johnson operating profit and Centene operating result dashboards have more detail.
- In terms of financial risk, Centene’s 76% debt as a percentage of equity is well above J&J’s 13%, while its 19% cash as a percentage of assets is slightly higher than the latter’s 17%. which implies that J&J has better debt. position, while Centene has more cash cushion.
3. Filet of Everything
- We see that Centene has demonstrated better revenue growth, has a better cash cushion, and is trading at a comparatively lower valuation. J&J is more profitable and its indebtedness is better.
- Now, looking at the outlook, using P/S as a base, due to the large swings in both P/E and P/EBIT, we believe Centene is currently the better choice of the two.
- The table below summarizes our revenue and return expectations for J&J and Centene over the next three years and indicates an expected return of 71% for Centene over this period versus an expected return of 9% for J&J, which implies that investors had better buy CNC. on JNJ, based on Trefis Machine Learning analysis – Johnson & Johnson vs. Centene – which also provides more detail on how we arrive at these numbers.
While CNC stock may outperform JNJ, the Covid-19 crisis has created many price discontinuities which may provide interesting trading opportunities. For example, you’ll be surprised how counter-intuitive stock valuation is to Johnson & Johnson v Devon Energy
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