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Centene (CNC) Up 7.4% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Centene Corporation (CNC - Free Report) . Shares have added about 7.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CNC 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 drivers.

Centene Q1 Earnings & Revenues Top,’18 View Lowered

Centene reported first-quarter 2018 adjusted net income per share of $2.17, which beat the Zacks Consensus Estimate by 13%. Also, the bottom line improved 93% year over year.

For the first quarter, total revenues rose 13% to $13.2 billion from the year-ago period, primarily driven by growth in the Health Insurance Marketplace business in 2018 as well as expansions and new programs across many states in both 2017 and this year. Moreover, the top line slightly surpassed the Zacks Consensus Estimate by 0.01%.

Quarterly Operational Update

As of Mar31, 2018, managed care membership came in at 12.8 million, a 6% increase over Ma 31, 2017.

Health Benefit Ratio (HBR) for the first quarter was 84.3% compared with 87.6% in the prior-year quarter. This reflects a year-over-year deterioration of 330 basis points (bps), stemming from membership growth in the Health Insurance Marketplace business, lower medical costs in Medicaid business and the reinstatement of the health insurer fee in 2018.

Adjusted Selling, General & Administrative (SG&A) expense ratio of 10.3% for the first quarter of 2018 compared with 9.3% for the first quarter of 2017. This represents a deterioration of 100basis points year over year, arising from growth in the Health Insurance Marketplace business, operating at a higher SG&A expense ratio.

Financial Update (As of Mar 31, 2018)

Centene had cash and cash equivalents of $5.7 billion, up 39% from 2017 end.

Total assets of $25.2 billion grew 15%.

Centene’s long-term debt totaled $5.2 billion, up 10%.

At the end of the first quarter of 2018, cash inflow from operations was $1.8 billion, up 48% year over year.

2018 Guidance Revised/Updated

Centene expects adjusted earnings per share in the range of $6.75-$7.15, down from the previous projection of $6.95-$7.35.

Total revenues are anticipated in the band of $58.2-$59.0 billion, down from the earlier forecast of $60.6-$61.4 billion.

HBR is estimated at 85.9-86.4% compared with the past view of 86.2-86.7%

Adjusted SG&A expense ratio is predicted at 9.4-9.8%, up from the former outlook of 9.2-9.7%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to five lower.

Centene Corporation Price and Consensus

 

Centene Corporation Price and Consensus | Centene Corporation Quote

VGM Scores

At this time, CNC has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. The stock was also allocated a grade of A on the value side, putting it in the top 20% 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 and the magnitude of these revisions indicates a downward shift. Notably, CNC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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