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Centene (CNC) Down 8.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Centene (CNC - Free Report) . Shares have lost about 8.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Centene due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Centene's Q2 Earnings Miss Estimates, Improve Y/Y

Centene reported second-quarter 2021 adjusted earnings per share of $1.25, which missed the Zacks Consensus Estimate by 11.3%. However, the bottom line improved 47.9% year over year attributable to higher revenues.

In the second quarter, total revenues improved 12% year over year to $31 billion, led by the recent PANTHERx buyout, membership growth in the Medicare business and the continuing suspension of Medicaid eligibility redeterminations. The top line also outpaced the consensus mark by 3%.

Quarterly Operational Update

As of Jun 30, 2021, managed care membership totaled 25.4 million, which climbed 3% year over year.

In the reported quarter, Health Benefits Ratio (HBR) came in at 88.3%, which expanded 620 basis points (bps) year over year. The reason can primarily be attributed to reduced medical utilization trends stemming from the COVID-19 pandemic and higher utilization in the Marketplace business along with an unfavourable 2020 risk adjustment that took place in 2021.

Adjusted selling, general and administrative (SG&A) expense ratio was 7.7% in the quarter, down 80 bps year over year. The decline could be attributed to lower short-term variable compensation costs, leveraging of costs over higher revenues from increased Medicaid enrolment and a recent few buyouts.

Financial Update (as of Jun 30, 2021)

Total assets were up 4.1% from the 2020-end figure to $71.5 billion.

Centene’s long-term debt was $16.5 billion, which dipped 0.9% from the figure at 2020 end.

In the first six months of 2021, net cash provided by operating activities totaled $1.7 billion, down 50.3% year over year.

2021 Guidance Updated

Concurrent with second-quarter results, the company revised its full-year outlook.

For the current year, management anticipates revenues in the $123.3-$125.3 billion range, up from the previous band of $120.1-$122.1 billion.

In 2021, the company’s adjusted EPS is still expected to be $5.05-$5.35.

This year, HBR is forecast between 87.5% and 88.1% compared with the
prior range of 87.1-87.7%.

The guidance for adjusted SG&A expense ratio now stands in the range of 8-8.4%.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Centene has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Centene has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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