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Centene (CNC) Up 8% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Centene (CNC - Free Report) . Shares have added about 8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Centene due for a pullback? 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 catalysts.
Centene Q3 Earnings Beat on Commercial Growth, View Raised
Centene reported third-quarter 2023 adjusted earnings per share (EPS) of $2, which beat the Zacks Consensus Estimate by 26.6%. The bottom line advanced 53.8% year over year.
Revenues of Centene amounted to $38 billion, which improved 6.1% year over year. The top line outpaced the consensus mark by 5.1%.
The strong third-quarter results benefited from growing marketplace membership, business wins and commercial growth. However, the positives were partially offset by rising operating expenses.
Quarterly Operational Update
Revenues from Medicaid rose 2% year over year to $21.6 billion, while Medicare revenues fell 4% year over year to $5.4 billion. Meanwhile, commercial revenues jumped 50% year over year to $6.5 billion.
Premiums of Centene improved 6.3% year over year to $33.9 billion, beating our estimate of $33.3 billion. It was propelled by membership growth in the Marketplace business, thanks to solid product positioning and growth in the overall market, partially counteracted by divestitures. Service revenues of $1.1 billion dropped 41.4% year over year in the quarter under review, narrower than our estimate of a decline of 47%.
The total membership of Centene came in at almost 28 million as of Sep 30, 2023, which increased 4.5% year over year but lagged our estimate of 28.4 million. Commercial business memberships witnessed a massive increase in the quarter, offsetting the decline in Medicaid and Medicare memberships.
The Health Benefits Ratio (HBR) of 87% for the third quarter of 2023 was lower than our estimate of 87.5% and the year-ago period’s 88.3%. It signals reducing costs per premium.
Centene reported adjusted net earnings of $1.1 billion in the quarter under review, which jumped from $755 million a year ago.
Total operating expenses of $37.3 billion increased 5.4% year over year and came above our estimate of $35.5 billion. Medical costs rose 4.9% year over year to $29.5 billion, higher than our estimate of $29.2 billion. Selling, general and administrative expenses (SG&A) of $3 billion escalated 7.1% year over year, above our estimate of $2.9 billion.
Adjusted SG&A expense ratio increased to 8.6% in the third quarter from 8.3% a year ago and came above our model estimate of 8.5%. The metric suffered a blow from an expanding Marketplace business.
Financial Update (as of Sep 30, 2023)
Centene exited the third quarter with cash and cash equivalents of $18.2 billion, which climbed from $12.1 billion at 2022-end. Total assets of $84.4 billion increased from $76.9 billion at 2022-end.
Long-term debt amounted to $17.89 billion, down slightly from $17.94 billion at 2022-end. The current portion of long-term debt amounted to $113 million.
Total stockholders’ equity of $25.4 billion grew from $24.2 billion at 2022-end.
In the reported quarter, the operating cash flow of $1 billion decreased 69.4% year over year.
Share Repurchase Update
Centene bought back 11.6 million shares worth $773 million in the third quarter. It bought back an additional 0.4 million shares for $27 million in October. As of Oct 24, 2023, it had a leftover share buyback capacity of $1.2 billion.
Guidance Revised
Premium and service revenues are currently forecasted to be between $137.5 billion and $139.5 billion, higher than the prior outlook of $137-$139 billion. Last year, the metric was at $135.5 billion. Revenues are estimated to be between $149 billion and $151 billion, up from the previous guidance of $147.3-$149.3 billion. The midpoint of the revised outlook implies a significant improvement from the 2022 figure of $144.5 billion.
Management anticipates adjusted EPS to register a minimum of $6.60 this year, while the earlier view called for the metric to be $6.45. The updated outlook suggests growth from the 2022 figure of $5.78 per share. Also, the management reiterated the adjusted EPS estimate to stay higher than $6.60 in 2024.
The company reaffirmed its previous guidance for the following metrics, HBR in the band of 87.1-87.7%, adjusted SG&A expense ratio within 8.7-9.1% and adjusted effective tax rate of 24.1-25.1%.
Diluted shares outstanding are anticipated to be in the range of 543.7-546.7 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -37.01% due to these changes.
VGM Scores
At this time, Centene has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. 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 indicates a downward shift. Notably, Centene has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Centene is part of the Zacks Medical - HMOs industry. Over the past month, UnitedHealth Group (UNH - Free Report) , a stock from the same industry, has gained 2.6%. The company reported its results for the quarter ended September 2023 more than a month ago.
UnitedHealth reported revenues of $92.36 billion in the last reported quarter, representing a year-over-year change of +14.2%. EPS of $6.56 for the same period compares with $5.79 a year ago.
UnitedHealth is expected to post earnings of $5.98 per share for the current quarter, representing a year-over-year change of +12%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.7%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for UnitedHealth. Also, the stock has a VGM Score of A.
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Centene (CNC) Up 8% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Centene (CNC - Free Report) . Shares have added about 8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Centene due for a pullback? 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 catalysts.
Centene Q3 Earnings Beat on Commercial Growth, View Raised
Centene reported third-quarter 2023 adjusted earnings per share (EPS) of $2, which beat the Zacks Consensus Estimate by 26.6%. The bottom line advanced 53.8% year over year.
Revenues of Centene amounted to $38 billion, which improved 6.1% year over year. The top line outpaced the consensus mark by 5.1%.
The strong third-quarter results benefited from growing marketplace membership, business wins and commercial growth. However, the positives were partially offset by rising operating expenses.
Quarterly Operational Update
Revenues from Medicaid rose 2% year over year to $21.6 billion, while Medicare revenues fell 4% year over year to $5.4 billion. Meanwhile, commercial revenues jumped 50% year over year to $6.5 billion.
Premiums of Centene improved 6.3% year over year to $33.9 billion, beating our estimate of $33.3 billion. It was propelled by membership growth in the Marketplace business, thanks to solid product positioning and growth in the overall market, partially counteracted by divestitures. Service revenues of $1.1 billion dropped 41.4% year over year in the quarter under review, narrower than our estimate of a decline of 47%.
The total membership of Centene came in at almost 28 million as of Sep 30, 2023, which increased 4.5% year over year but lagged our estimate of 28.4 million. Commercial business memberships witnessed a massive increase in the quarter, offsetting the decline in Medicaid and Medicare memberships.
The Health Benefits Ratio (HBR) of 87% for the third quarter of 2023 was lower than our estimate of 87.5% and the year-ago period’s 88.3%. It signals reducing costs per premium.
Centene reported adjusted net earnings of $1.1 billion in the quarter under review, which jumped from $755 million a year ago.
Total operating expenses of $37.3 billion increased 5.4% year over year and came above our estimate of $35.5 billion. Medical costs rose 4.9% year over year to $29.5 billion, higher than our estimate of $29.2 billion. Selling, general and administrative expenses (SG&A) of $3 billion escalated 7.1% year over year, above our estimate of $2.9 billion.
Adjusted SG&A expense ratio increased to 8.6% in the third quarter from 8.3% a year ago and came above our model estimate of 8.5%. The metric suffered a blow from an expanding Marketplace business.
Financial Update (as of Sep 30, 2023)
Centene exited the third quarter with cash and cash equivalents of $18.2 billion, which climbed from $12.1 billion at 2022-end. Total assets of $84.4 billion increased from $76.9 billion at 2022-end.
Long-term debt amounted to $17.89 billion, down slightly from $17.94 billion at 2022-end. The current portion of long-term debt amounted to $113 million.
Total stockholders’ equity of $25.4 billion grew from $24.2 billion at 2022-end.
In the reported quarter, the operating cash flow of $1 billion decreased 69.4% year over year.
Share Repurchase Update
Centene bought back 11.6 million shares worth $773 million in the third quarter. It bought back an additional 0.4 million shares for $27 million in October. As of Oct 24, 2023, it had a leftover share buyback capacity of $1.2 billion.
Guidance Revised
Premium and service revenues are currently forecasted to be between $137.5 billion and $139.5 billion, higher than the prior outlook of $137-$139 billion. Last year, the metric was at $135.5 billion. Revenues are estimated to be between $149 billion and $151 billion, up from the previous guidance of $147.3-$149.3 billion. The midpoint of the revised outlook implies a significant improvement from the 2022 figure of $144.5 billion.
Management anticipates adjusted EPS to register a minimum of $6.60 this year, while the earlier view called for the metric to be $6.45. The updated outlook suggests growth from the 2022 figure of $5.78 per share. Also, the management reiterated the adjusted EPS estimate to stay higher than $6.60 in 2024.
The company reaffirmed its previous guidance for the following metrics, HBR in the band of 87.1-87.7%, adjusted SG&A expense ratio within 8.7-9.1% and adjusted effective tax rate of 24.1-25.1%.
Diluted shares outstanding are anticipated to be in the range of 543.7-546.7 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -37.01% due to these changes.
VGM Scores
At this time, Centene has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. 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 indicates a downward shift. Notably, Centene has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Centene is part of the Zacks Medical - HMOs industry. Over the past month, UnitedHealth Group (UNH - Free Report) , a stock from the same industry, has gained 2.6%. The company reported its results for the quarter ended September 2023 more than a month ago.
UnitedHealth reported revenues of $92.36 billion in the last reported quarter, representing a year-over-year change of +14.2%. EPS of $6.56 for the same period compares with $5.79 a year ago.
UnitedHealth is expected to post earnings of $5.98 per share for the current quarter, representing a year-over-year change of +12%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.7%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for UnitedHealth. Also, the stock has a VGM Score of A.