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Centene (CNC) Up 3.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Centene (CNC - Free Report) . Shares have added about 3.1% in that time frame, outperforming 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 drivers.

Centene's Earnings and Revenues Top Estimates in Q3

Centene Inc. reported third-quarter 2018 adjusted earnings per share of $1.79, which beat the Zacks Consensus Estimate by 1.1%. Also, the bottom line improved 32.6% year over year. These encouraging results were mainly driven by the company’s execution of growth strategy and its solid operating metrics.

For the third quarter, total revenues surged 36% to $16.2 billion from the year-ago period, primarily aided by a stronger Health Insurance Marketplace business in 2018, purchases, expansions and new programs across many states in 2018 as well as reinstatement of the health insurer fee in 2018.

However, this upside was partially offset by the impact of the removal of in-home support services (IHSS) program from California's Medicaid contract in January 2018. Moreover, the top line surpassed the Zacks Consensus Estimate by 0.6%.

Quarterly Operational Update

As of Sep 30, 2018, managed care membership came in at 14.4 million, a 17% increase over the level as of Sep 30, 2017.

Health Benefit Ratio (HBR) for the reported quarter was 86.3% compared with 88.0% in the prior-year period. This contraction of 170 basis points (bps) is mainly due to the recognition of the previously mentioned IHSS program reconciliation, membership growth in the Health Insurance Marketplace business and the reinstatement of the health insurer fee in 2018. However, this downside was partially offset by the buyout of Fidelis Care.

Adjusted SG&A expense ratio of 10% for the third quarter of 2018 compared unfavorably with 8.9% for the same period last year. This represents a deterioration of 110 basis points year over year, arising from the expenses related to the previously mentioned Veterans Affairs contract expiration and other charity-related costs. Health Insurance Marketplace business also contributed to this downtrend, partially offset by the Fidelis buyout.

Financial Update

Centene had cash and cash equivalents of $6.8 billion, up 68.1% from the figure at 2017 end.

Total assets of $31.2 billion grew 42.6%.

Centene’s long-term debt totaled $6.3 billion, up 35.8%.

For the quarter under review, cash outflow from operations was $548 million.

2018 Guidance Updated

Centene expects adjusted earnings per share in the range of $6.90-$7.10, tightened from the previous projection of $6.80-$7.16.

Total revenues are anticipated in the band of $59.8-$60.3 billion, up from the earlier forecast of $59.2-$60 billion.

HBR is estimated at 85.9-86.3%.

Adjusted SG&A expense ratio is predicted at 9.7-10.1%, up from the former outlook of 9.4-9.9%.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Centene has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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 this revision indicates a downward shift. Notably, Centene has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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