Centene: Strong Buy, For All The Wrong Reasons (NYSE:CNC)

Core Viewpoint - Centene Corporation (NYSE: CNC) is initiated with a Strong Buy rating, reflecting a positive outlook on the company's potential value and performance [1] Valuation Methodology - The article discusses various methods sell-side analysts use to determine a company's fair value, highlighting the limitations of traditional approaches like DCF and multiples [1] - A reverse valuation approach is proposed, which starts from the market price and discount rate to reveal the free cash flow assumptions already embedded in the price [1] - The Free Cash Flow to Equity (FCFE) model is utilized to assess what truly belongs to shareholders, focusing on earnings, amortization, and investments while ignoring working capital and debt changes [1] Forecasting Approach - The H-model is applied for forecasts, which incorporates a 10-year two-stage growth fade with terminal growth equal to the risk-free rate (RFR) [1] - All cash flows are discounted using the cost of equity, calculated as RFR multiplied by beta plus a 5% equity risk premium (ERP) [1] - This methodology aims to provide a clear and noise-free picture of the business's true worth [1]