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Centene (CNC) Down 9.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Centene (CNC - Free Report) . Shares have lost about 9.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Centene due for a breakout? 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 Top Estimates in Q4, Surge Y/Y

Centene reported fourth-quarter 2018 adjusted earnings per share of $1.38, beating the Zacks Consensus Estimate of $1.33 by 3.8%. Also, the bottom line improved 42.3% year over year.  

For the fourth quarter, total revenues jumped 29% to $16.6 billion from the year-ago period, primarily aided by a solid Health Insurance Marketplace business in 2018, purchase of Fidelis Care, expansions and new programs across many states in 2018 and reinstatement of the health insurer fee in 2018.

However, this upside was partially offset by lower pass-through payments from California and the effect of removal of in-home support services (IHSS) program from California’s Medicaid contract. Moreover, the top line surpassed the Zacks Consensus Estimate by nearly 2%.

Quarterly Operational Update

As of Dec 31, 2018, managed care membership came in at 14 million, reflecting a 14.8% increase year over year.

Health Benefit Ratio (HBR) for the reported quarter was 86.8% compared with 87.3% in the prior-year period. This contraction of 50 basis points (bps) is mainly due to 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 Selling, General & Administrative (SG&A) expense ratio of 9.9% for the fourth quarter of 2018 compared with 10.5% for the same period last year. This decline of 60 basis points year over year is due to the impact of Fidelis Care acquisition. However, the same was partially offset by growth in Health Insurance Marketplace business and on account of the removal of IHSS program from California's Medicaid contract.

Financial Update

As of Dec 31, 2018, the company's cash and cash equivalents totaled $5.3 billion, up 31.1 % from the figure at 2017 end.

As of Dec 31, 2018, total assets were up by 41.4% year over year to $30.9 billion.

Centene’s long-term debt summed $6.6 billion, up 41.6% year over year.

For 2018, cash outflow from operations was $1.2 billion, down 17.1% from 2017’s level.

Capital Deployment

On Dec 12, 2018, the company’s board of directors announced a two-for-one split of its common stock in the form of a 100% stock dividend, payable Feb 6, 2019 to shareholders of record on Dec 24, 2018.

2019 Outlook

Following strong 2018 results, the company has issued an outlook for 2019 earnings. It expects its total revenues to be in the band of $70.3-$71.1 billion.

Adjusted EPS is forecast between $4.11 and $4.31.

The company projects its HBR to range from 86.5% to 87%.

In 2019, adjusted SG&A expense ratio is estimated between 9.3% and 9.8%.

The company anticipates its shares outstanding in the range of 421.5-422.5 million.

Full-Year Highlights

For 2018, the company delivered an adjusted EPS of $7.08, up 40.8% year over year.

Revenues for the full year came in at $60 billion, mirroring an improvement of 24.3% year over year.

Health benefits ratio (HBR) for the full year stands at 85.9% compared with 2017's tally of 87.3%.

The company reported adjusted SG&A expense ratio of 10.0% for 2018, up by 50 basis points from 9.5% for 2017.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Centene has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Centene has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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