Coiled Spring
NYSE: CNC
Earnings season is exciting because the timing of information releases can significantly affect compensation decisions.
Centene recently gave out some executive grants, and they look a little odd...
One of my subscribers pointed out a recent Edwin Dorsey interview, where he and Swen Lorenz discussed the idea of building an AI tool to detect “oddly-timed options grants or executive compensation changes”.
I’ve previously played around with building such a tool but I found that my non-technical abilities were a significant crutch (even with the help of LLM’s). The true difficulty is in obtaining high-quality and relevant results, and eliminating much of the noise. I’d guess that my current scraping method results in a hit-rate of less than 3%. Of that 3%, the majority don’t turn out to be fruitful ideas.
Either way, I hope someone tries to build this tool and invites me to be a part of the Beta Test group. Now, back to your scheduled programming.
Centene is set to release FY 2025 earnings on February 6, 2026. Interestingly, on January 26, they gave their entire executive team their yearly RSU/PSU grants. That seems like the ideal setup for a spring-load.
What we know:
The board and management had the financial results in-hand when they granted the awards
The time between the awards and the release of FY 2025 financial results is two weeks
Historically, executive awards are given in mid-march
These awards were given more than a month in advance
The PSUs are only based on 3-year stock price performance
Previous year PSUs were based on three equal-weighted measures: pre-tax earnings CAGR, pre-tax earnings margin, and relative TSR
Retaining executives in the healthcare space is incredibly important given the ongoing changes being made by the administration
Getting the timing right on large grants is incredibly important to ensure constant motivation and retention of executives
The evidence seems pretty obvious, but the company’s most recent proxy contains the following disclosure:
We historically do not strategically time long-term incentive awards in coordination with the release of material nonpublic information and have never had a practice of doing so. Accordingly, we do not consider the release of material nonpublic information in relation to the grant of such awards, and do not time such release for the purpose of affecting the value of execution compensation.
Do I believe that a disclosure like that precludes a spring-load? Absolutely not.
If I was providing research to a hedge fund, I’d tell them to buy some short-dated call options on the stock.
“♡ Like” this piece if you’d buy my research.
Fantasticooo
Great catch!