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Why Is Centene (CNC) Down 2.1% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Centene Corporation (CNC - Free Report) . Shares have lost about 2.1% in that time frame, underperforming the market.

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

Centene Beats on Q2 Earnings, Revenues Increase Y/Y

Centene reported second-quarter 2017 adjusted net income per share of $1.59, which beat the Zacks Consensus Estimate by 22.3%. Earnings also improved 23.2% year over year, primarily on the back of higher revenues.

Operational Update

For the quarter, total revenue grew 10% to $12 billion year over year, primarily driven by growth in the Health Insurance Marketplace business in 2017 and expansions and new programs in many of the states in 2016 and 2017. This was partially offset by lower membership in the commercial business in California. Revenues also surpassed the Zacks Consensus Estimate of $11.6 billion by 2.6%.

At the end of the second quarter, managed care membership of 12.2 million reflected an increase of 7% from the second quarter of 2016.

Health Benefit Ratio (HBR) for the quarter was 86.3% compared with 86.6% in the prior-year quarter. This deterioration of 30 basis points (bps) was due to growth in the Health Insurance Marketplace business, which operates at a lower HBR.

In the second quarter, adjusted selling, general and administrative expenses ratio was 9.3%, up 30 bps year over year. This deterioration was due to higher variable compensation expenses based on performance of the business in 2017 and increased business expansion costs. However, this was partially offset by higher Health Net acquisition related expenses in 2016.

Total operating expenses of $11.5 billion increased 9.5% over the prior-year quarter.

Financial Update

As of Jun 30, 2017, Centene had cash and cash equivalents of $4.4 billion, up 12.6% year over year.

Total assets of $21.8 billion grew 8% year over year at the end of the second quarter.

As of Jun 30, 2017, Centene’s long-term debt totaled $4.7 billion, up 1.4% year over year.

At the end of the reported quarter, cash flow used in operations was $306 million. This cash outflow stemmed from to an increase in premium and related receivables of approximately $750 million. This was due to the timing of June-capitation payments from several states.

However, for the first six months of 2017, cash inflow from operations was $942 million against an outflow of $223 million in the prior-year period.

2017 Guidance

For 2017, Centene expects adjusted earnings per diluted share to be in the range of $4.70–$5.06. Total revenue is expected to be in the range of $46.4 billion to $47.2 billion.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in  fresh estimates. There have been three revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downside. There have been five moves lower in the last two months.

Centene Corporation Price and Consensus

VGM Scores

At this time, Centene's stock has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. 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.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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