Monday, June 16, 2014

Trading Idea: Centene Corp. (CNC)


Centene Corp. (CNC) gapped out of a second stage cup and handle base on April 22nd, in volume 551% above average, after reporting stronger then expected earnings. The stock has run up 17% and is currently pulling back to the twenty day moving average, forming a three weeks tight base in quiet volume. A breakout above the base high around $76 would confirm further strength.

Quarterly sales growth has accelerated for two straight quarters, from 15% to 31% and is expected to continue accelerating for the next three quarters to 39%. Margins have doubled over the last four quarters and return on equity has accelerated from 6.8% to 15.1%. Accelerating sales growth and rapidly expanding margins lead to upside earnings surprises and higher stock prices. The company beat earning's estimates by 32% last quarter.

The twelve to eighteen month price target range is $112 - 134 (50 - 80%). Short term, the stock can trade above $80 if the rally continues. Protective sell stops should be placed between $70 - $71 to protect from a major loss.

Full Disclosure: No Position


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