Found this an important reminder (from an article i read): the biggest culprit in rising health care costs is the rates charged by hospitals and doctors’ offices, which are in turn covered by insurers, experts say.
“Prescription drug spending and insurance company overhead and profits is a tiny slice of the pie compared to spending on hospitals and doctors,” said Cynthia Cox, senior vice president and director at KFF.
“You can imagine cuts in any of these categories, but where the money is is inpatient and outpatient care,” Cox said.
Now...can you imagine who will benefit when hospitals cut spending and claims lesser from health insurance? (albeit temporarily) - If "the top brass" is thinking clearly, they will be addressing this, the root cause (and not trying to renegotiate with health insurance)
Update: I made a mistake in my analysis. I utilized replacement cost as the book value of 1 which resulted in my valuation upside inflating. I have edited and amended to:
‼️ Bull Case (Sector Average 3× P/B): $49.2B → 194.6% upside (It is important to note that this book value is based on 64% of their revenue-generating activity which is Medicaid. Hence, we are being extremely conservative here especially when we consider the fact that they have written off of c.$6.6B which theoretically have contributed to its durable moat. Therefore, we should include that, and if we do; we can get an approximate $69B in intrinsic value/ $140 per share, 313% upside)
Current Market Cap: $16.7B
To be honest, i'm not very satisfied with the margin of safety as this now becomes my 2nd best idea in terms of the quality of the stock. With its stock options availability I would still place it in the first place, but tbh its a relatively risky one since my MOS shrank - hence i'm not very satisfied
I will be posting the alternative opportunity i am looking at (in a few days) and might be look to re-adjust my position
P.s. Also note that this valuation is only based on the 64% of Centene's business - Medicaid. The valuation does not include its ACA and Medicare business
Update: thinking - Because Centene also has Medicare (which differs from Molina), theoretically, dual eligible individuals would provide Centene a "cross-sell" ability which effectively reduces the cost of customer acquisition (as Revenue per member increases as well). We can see this "phenomena" play out as SG&A decreases throughout the past few years.
Despite Medicare having high running expenses (which reduces lifetime profit per customer), the complexity it drives increases the lifecycle of customers/ life stages, effectively increasing the lifetime profit per customer and offsetting the lower margins - similar to a exclusive grocery store in a specific location - low customer acquisition cost, low spending per visit but higher frequency of visits
That being said "Centene said its rate of rejoiners (members who re-enroll shortly after losing coverage) had risen to about 25%, while 👉 Molina reported re-enrollment rates around 30%👈. UnitedHealth reported 15–20% re-enrollment" 🤔 thoughts? Is this anchoring bias from me?
In other words, Molina cannot afford to be a loss leader in Medicaid. Centene can
Hi there—I read your article thoroughly, and it’s really well-written with deep, detailed research. I was curious: what tools do you use for your regular research work? Word? Notion? Substack? Or some other software?
Found this an important reminder (from an article i read): the biggest culprit in rising health care costs is the rates charged by hospitals and doctors’ offices, which are in turn covered by insurers, experts say.
“Prescription drug spending and insurance company overhead and profits is a tiny slice of the pie compared to spending on hospitals and doctors,” said Cynthia Cox, senior vice president and director at KFF.
“You can imagine cuts in any of these categories, but where the money is is inpatient and outpatient care,” Cox said.
Now...can you imagine who will benefit when hospitals cut spending and claims lesser from health insurance? (albeit temporarily) - If "the top brass" is thinking clearly, they will be addressing this, the root cause (and not trying to renegotiate with health insurance)
Update: I made a mistake in my analysis. I utilized replacement cost as the book value of 1 which resulted in my valuation upside inflating. I have edited and amended to:
Conservative (Liquidation + Required Capital): $26.5B → 53% upside
‼️ Bull Case (Sector Average 3× P/B): $49.2B → 194.6% upside (It is important to note that this book value is based on 64% of their revenue-generating activity which is Medicaid. Hence, we are being extremely conservative here especially when we consider the fact that they have written off of c.$6.6B which theoretically have contributed to its durable moat. Therefore, we should include that, and if we do; we can get an approximate $69B in intrinsic value/ $140 per share, 313% upside)
Current Market Cap: $16.7B
To be honest, i'm not very satisfied with the margin of safety as this now becomes my 2nd best idea in terms of the quality of the stock. With its stock options availability I would still place it in the first place, but tbh its a relatively risky one since my MOS shrank - hence i'm not very satisfied
I will be posting the alternative opportunity i am looking at (in a few days) and might be look to re-adjust my position
P.s. Also note that this valuation is only based on the 64% of Centene's business - Medicaid. The valuation does not include its ACA and Medicare business
Update: thinking - Because Centene also has Medicare (which differs from Molina), theoretically, dual eligible individuals would provide Centene a "cross-sell" ability which effectively reduces the cost of customer acquisition (as Revenue per member increases as well). We can see this "phenomena" play out as SG&A decreases throughout the past few years.
Despite Medicare having high running expenses (which reduces lifetime profit per customer), the complexity it drives increases the lifecycle of customers/ life stages, effectively increasing the lifetime profit per customer and offsetting the lower margins - similar to a exclusive grocery store in a specific location - low customer acquisition cost, low spending per visit but higher frequency of visits
That being said "Centene said its rate of rejoiners (members who re-enroll shortly after losing coverage) had risen to about 25%, while 👉 Molina reported re-enrollment rates around 30%👈. UnitedHealth reported 15–20% re-enrollment" 🤔 thoughts? Is this anchoring bias from me?
In other words, Molina cannot afford to be a loss leader in Medicaid. Centene can
Hi there—I read your article thoroughly, and it’s really well-written with deep, detailed research. I was curious: what tools do you use for your regular research work? Word? Notion? Substack? Or some other software?