Critical Comparison: Aetna Inc. (AET) vs. Centene Corporation (CNC)

Aetna Inc. (NYSE:AET) shares are up more than 2.12% this year and recently increased 0.40% or $0.73 to settle at $184.21. Centene Corporation (NYSE:CNC), on the other hand, is up 5.85% year to date as of 01/10/2018. It currently trades at $106.78 and has returned 4.18% during the past week.

Aetna Inc. (NYSE:AET) and Centene Corporation (NYSE:CNC) are the two most active stocks in the Health Care Plans industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.


One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect AET to grow earnings at a 10.68% annual rate over the next 5 years. Comparatively, CNC is expected to grow at a 13.98% annual rate. All else equal, CNC’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 4.34% for Centene Corporation (CNC). AET’s ROI is 7.40% while CNC has a ROI of 6.30%. The interpretation is that AET’s business generates a higher return on investment than CNC’s.

Cash Flow 

The amount of free cash flow available to investors is ultimately what determines the value of a stock. AET’s free cash flow (“FCF”) per share for the trailing twelve months was +3.75. Comparatively, CNC’s free cash flow per share was -0.13. On a percent-of-sales basis, AET’s free cash flow was 1.94% while CNC converted -0.06% of its revenues into cash flow. This means that, for a given level of sales, AET is able to generate more free cash flow for investors.

Financial Risk

AET’s debt-to-equity ratio is 0.65 versus a D/E of 0.71 for CNC. CNC is therefore the more solvent of the two companies, and has lower financial risk.


AET trades at a forward P/E of 17.93, a P/B of 3.90, and a P/S of 0.99, compared to a forward P/E of 18.62, a P/B of 2.77, and a P/S of 0.38 for CNC. AET is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. AET is currently priced at a -5.59% to its one-year price target of 195.12. Comparatively, CNC is -5.72% relative to its price target of 113.26. This suggests that CNC is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for AET and 2.00 for CNC, which implies that analysts are more bullish on the outlook for AET.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. AET has a beta of 0.60 and CNC’s beta is 0.70. AET’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. AET has a short ratio of 0.82 compared to a short interest of 2.90 for CNC. This implies that the market is currently less bearish on the outlook for AET.


Aetna Inc. (NYSE:AET) beats Centene Corporation (NYSE:CNC) on a total of 9 of the 14 factors compared between the two stocks. AET is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, AET has better sentiment signals based on short interest.

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