CNC – Traded CDS 140bps, Base Case iCDS 73bps, Negative Case iCDS 81bps, 2027 4.250% Bond YTW of 5.050%, iYTW of 3.750%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

May 9, 2022

  • Cash bond markets are overstating CNC’s credit risk with a YTW of 5.050% relative to an Intrinsic YTW of 3.750%. Meanwhile, CDS markets are slightly overstating CNC’s credit risk with a CDS of 140bps and Intrinsic CDS of 73bps. Finally, Moody’s is overstating the firm’s fundamental credit risk, with its non-investment grade Ba1 credit rating three notches lower than Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management’s compensation framework should drive them to focus heavily on margin expansion and revenue growth, which may lead to Uniform ROA improvement and higher cash flows available for servicing obligations. Meanwhile, management members are not well-compensated in a change-in-control scenario, indicating they are unlikely to pursue a sale or accept a buyout of the firm, limiting event risk. Furthermore, management members are material holders of CNC equity relative to their annual compensation, indicating they should be aligned with shareholders for long-term value creation
  • Earnings Call Forensics™ analysis of the firm’s Q4 2021 (02/08) earnings call highlights that management generated an excitement marker when saying teledigital and telemarketing channels continue to make up half their sales. In addition, they are confident their call center standardization initiative will offer more convenient ways for members to interact with the company.

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