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Centene’s Fidelis Care Buyout to Expand Presence in New York


Centene Corporation CNC has signed a definitive agreement with Fidelis Care of New York. Per the agreement, the company would take over all Fidelis Care’s assets for $3.75 billion.

Why Fidelis Care?

Fidelis Care is a perfect fit for Centene given the former’s diversified leadership in government programs. Moreover, the company boasts a history of profitable operations and a healthy balance sheet. With a statewide network of approximately 70,000 providers, the company offers high quality health insurance coverage at lower costs to children and adults. The company’s offerings include Medicaid, Qualified Health Plans, Child Health Plus, Essential Plan as well as Medicare Advantage, a much sought-after market in which Centene intends to expand.

This buyout would enable Centene to acquire national leadership in government sponsored healthcare in New York and also make it the second largest managed care state by membership across the United States.

In addition, inclusion of New York under area of operation would provide Centene the leadership position in the four largest managed care states of the United States by membership, namely, California, Florida, New York and Texas.

Will the Deal Drive Synergy?

Centene expects to generate 2018 pro-forma total revenues of more than $60 billion by the end of 2017 with this buyout. The company also expects the acquisition to positively impact its GAAP earnings per share and adjusted earnings per share in the first two years after the completion of the transaction. It also anticipates to achieve $25 million of pre-tax net synergies in the first year post acquisition and $100 million run-rate synergies beginning the second year. Synergies are expected to come from areas driven by lower medical costs through the use of Centene's systems and medical management programs.

Inorganic Expansion Drives Growth

This deal is in line with Centene’s efforts to deploy capital in numerous acquisitions and mergers aimed at expanding the company’s markets and increasing the government business. The acquisition of Health Net in 2016 has been significantly accretive to the company’s bottom line and top line. The acquisition of Fidelis Care is also likely to impact the company’s underwriting results favorably. These efforts have always been appreciated by shareholders. Year to date, its shares have gained 61%, outperforming the industry’s rally of 28%.

Centene also looks forward to bring its suite of specialty services, TruCare case management platform, and intelligence data & analytics tools and award winning clinical programs to New York to further strengthen its presence and improve operating results.

Zacks Rank & Stocks to Consider

Centene presently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in this space can consider stocks like Aetna, Inc AET, Wellcare Health Plans, Inc. WCG and Amedisys Inc AMED. All the three stocks carry a Zacks Rank #2 (Buy).

Aetna’s earnings surpassed expectations in each of the last four quarters with an average beat of nearly 19%.

Wellcare Health delivered positive surprises in each of the last four quarters with an average beat of 47.4%.

Amedisys delivered positive surprises in three of the last four quarters with an average beat of 7.2%.

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