It has been about a month since the last earnings report for Centene (
CNC Quick Quote CNC - Free Report) . Shares have lost about 3% 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 its most recent earnings report in order to get a better handle on the important drivers.
Centene Q1 Earnings Miss Estimates, '23 EPS View Raised
Centene Corporation reported first-quarter 2023 adjusted earnings per share (EPS) of $2.11, which lagged the Zacks Consensus Estimate by 5.4%. Nevertheless, the bottom line advanced 15.3% year over year.
Revenues of CNC amounted to $38,889 million, which improved 4.6% year over year. The top line outpaced the consensus mark by 7.1%.
The quarterly results took a hit from escalating medical costs. Nevertheless, the downside was partly offset by a growing premium base stemming from solid membership growth within most of its business lines and numerous contract wins.
Quarterly Operational Update
Revenues from Medicaid rose 5% year over year in the first quarter, while Medicare revenues grew 2% year over year. Meanwhile, commercial revenues climbed 27% year over year.
Premiums of Centene improved 6.1% year over year to $33,825 million, higher than the Zacks Consensus Estimate of $33,104 million and our estimate of $32,936.5 million. This was due to solid membership growth of 52% in the Marketplace business as well as organic Medicaid growth.
Service revenues of $1,127 million dropped 51.9% year over year in the quarter under review. Yet, the metric beat the consensus mark of $816 million.
The total membership of CNC came in at 28.5 million as of Mar 31, 2023, which increased 8.5% year over year and surpassed our estimate of 27.4 million.
Health Benefits Ratio (HBR) of 87% improved 30 basis points (bps) year over year in the first quarter, thanks to disciplined Marketplace pricing and reduced Medicare utilization.
Centene reported net earnings of $1,130 million in the quarter under review, which surged 32.6% year over year.
Total operating expenses of $37,671 million increased 4.8% year over year. Medical costs rose 5.7% year over year to $29,434 million while selling, general and administrative expenses (“SG&A”) of $3,011 million escalated 9.7% year over year.
Adjusted SG&A expense ratio deteriorated 80 bps year over year to 8.5% in the first quarter. The metric suffered a blow from an expanding Marketplace business that operates at an increased SG&A ratio.
Financial Update (as of Mar 31, 2023)
Centene exited the first quarter with cash and cash equivalents of $15,853 million, which climbed 31.3% from the 2022-end figure. Total assets of $83 billion increased 8% from the figure at 2022 end.
Long-term debt amounted to $18,223 million, up 1.6% from the level as of Dec 31, 2022. The current portion of long-term debt amounted to $97 million.
Total stockholders’ equity of $25,166 million grew 4.1% from the 2022-end figure.
In the reported quarter, net operating cash flow of $4,269 million increased almost four-fold year over year.
Share Repurchase Update
Centene bought back 4.9 million shares worth $377 million in the first quarter. As of Apr 25, 2023, CNC had a leftover share buyback capacity of $2.2 billion.
2023 Guidance Revised
Premium and service revenues are currently forecasted between $135.2 billion and $137.2 billion, higher than the prior outlook of $131.5-$133.5 billion. The mid-point of the revised outlook indicates a rise of 0.5% from the 2022 reported figure.
Revenues are estimated to lie between $144.5 billion and $146.5 billion, up from the previous guidance of $137.4-$139.4 billion. The midpoint of the revised outlook implies a 0.7% improvement from the 2022 figure.
Management anticipates adjusted EPS to register a minimum of $6.40 this year, while the earlier view called for the metric to stay between $6.25 and $6.40. The mid-point of the updated outlook suggests a minimum growth of 10.7% from the 2022 figure.
HBR is estimated in the 87.1-87.7% band, compared to the prior outlook of 87.2-87.8%. Adjusted SG&A expense ratio is expected within 8.7-9.1%, higher than the previous guidance of 8.2-8.7%. It also expects an adjusted effective tax rate of 24.1-25.1%.
Diluted shares outstanding are anticipated within 546.6-549.6 million.
2024 Outlook Trimmed
On the basis of an updated view of Medicaid redeterminations, Medicare bid strategy, and business investments, management estimates adjusted EPS to stay higher than $6.60 in 2024. The earlier view called for the metric to be a minimum of $7.15.
Centene remains optimistic to achieve long-term adjusted earnings compound annual growth in the range of 12-15% in the second half of this decade.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 15.7% due to these changes.
Currently, Centene has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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.
Estimates have been trending upward 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.