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Can Medicaid Business Drive Centene's (CNC) Q3 Earnings?

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Centene Corporation (CNC - Free Report) will release third-quarter 2017 results on Oct 24, before the market opens.

For the past few quarters, Centene has been witnessing consistent growth in its membership that has been driving the overall top line.  The company expects this uptrend  to continue in the third quarter as well and impact revenues positively. The Zacks Consensus Estimate for total membership is currently pegged at 12.1 billion, reflecting 6.1% year over year growth.

The major contributor to this rising membership is Centene’s continuously growing Medicaid base. Medicaid expansion, another provision of Affordable Care Act, has benefitted Centene. This was driven by Centene’s intention to continue on exchanges while other health insurers are exiting it. The third quarter is also likely to witness further expansion of its Medicaid business. In the third quarter, the company successfully reprocured a new statewide Medicaid contract in Georgia and Nevada. The Zacks Consensus Estimate for Medicaid membership presently stands at 5.8 billion, reflecting a year over year growth of  3.6%.

Moreover, Centene has been taking several cost saving initiatives that are reducing the level of expenses. The margin is likely to be aided by lower  expenses in the third quarter. The Zacks Consensus Estimate for total general and administrative expenses ratio is currently pegged at 0.09 compared with 9.23 in the second quarter of 2017.

Other Factors

Apart from the Medicaid expansion, growing Medicare beneficiaries are also likely to drive the top line in the third quarter.

The company’s Government-sponsored Health Insurance business is anticipated to perform well, adding to the top line.

Centene also expects its exchange business to perform well in 2017 and the to-be-reported quarter is expected to reflect the same trend.

The international business is also likely to perform well in the third quarter as well as in 2017.

The company’s share repurchase programs intended to enhance shareholders’ value might impact margins positively by reducing the outstanding share count.

Increasing costs related to interest payment, reserves for settlements, legal judgments and lawsuits, impairments of long-lived assets might affect earnings.

Earnings Predictions

Our proven model shows that Centene has the right combination of two key ingredients to beat estimates this quarter.

Zacks ESP:Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.45%. This is because the Most Accurate estimate of $1.28 is higher than the Zacks Consensus Estimate of $1.25. The positive ESP is a leading indicator of a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Centene Corporation Price and EPS Surprise

Zacks Rank: Centene sports a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating on earnings. The combination of Centene’s favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat.

Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

Other Stocks to Consider

Here are some other companies from the medical sector that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:

Aetna, Inc. (AET - Free Report) , which is set to report third-quarter earnings on Oct 31, has an Earnings ESP of +1.20% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teladoc Inc.(TDOC - Free Report) has an Earnings ESP of +0.76% and a Zacks Rank #3. The company is set to report third-quarter earnings on Nov 1.

Humana, Inc. (HUM - Free Report) has an Earnings ESP of +1.10% and a Zacks Rank #3. The company is set to report third-quarter earnings on Nov 8.

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