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Why Is Centene (CNC) Down 12.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Centene (CNC - Free Report) . Shares have lost about 12.7% 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 its most recent earnings report in order to get a better handle on the important drivers.

Centene’s Q2 Earnings Beat Estimates, Improve Y/Y

Centene delivered second-quarter 2019 adjusted earnings per share of $1.34, beating the Zacks Consensus Estimate by 8.1%. Also, the bottom line improved 48.9% year over year on the back of operational excellence and higher revenues.  

For the second quarter, total revenues rose 29% to $18.4 billion from the year-ago period, primarily aided bythe Fidelis buyout, Health Insurance Marketplace business, expansions and new programs across many states in 2018 and 2019. Moreover, the top line surpassed the Zacks Consensus Estimate by nearly 2%. However, this upside was offset by the health insurer fee moratorium to some extent.

Quarterly Operational Update

As of Jun 30, 2019, managed care membership came in at 15 million, up 17% year over year.

Health Benefit Ratio (HBR) for the reported quarter was 86.7% compared with 85.7% in the prior-year period. This increase can be attributable to the Health Insurance Marketplace business.

Adjusted Selling, General & Administrative (SG&A) expense ratio was 9% for the second quarter of 2019 compared with 9.6% for the same period last year. This contraction of 60 basis points year over year is due to the impact of the Fidelis Care acquisition.

Financial Update

As of Jun 30, 2019, the company's cash and cash equivalents totaled $6.8 billion, up 28.7% from the figure at 2018 end.

As of Jun 30, 2019, total assets were up by 11.2% year over year to $34.3 billion.

Centene’s long-term debt summed $7 billion, up 6% year over year.

For the first half of 2019, cash outflow from operations was $2.2 billion, up 69.2% year over year.

2019 Outlook

Following solid second-quarter results, the company has revised its 2019 guidance.

It now expects revenues in the range of $73.6-$74.2 billion, up from the earlier projection of $72.8-73.6 billion.

Adjusted EPS is expected in the band of $4.29-$4.49, up from the $4.24-$4.44 range.

HBR is expected within 86.6-87.1%, up from 86.5-87%.

Adjusted SG & A expense ratio is estimated between 9.1% and 9.6%, better from the previous estimate of 9.3-9.8%.

Highlights

In June 2019, Centene and WellCare shareholders approved the pending buyout of WellCare Health Plans, Inc.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Centene has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise 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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