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Why Is Centene (CNC) Up 22.9% 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 added about 22.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

Centene's Q3 Earnings and Revenues Beat Estimates

Centene delivered third-quarter 2019 adjusted earnings per share of 96 cents, beating the Zacks Consensus Estimate by 1.1%. Also, the bottom line improved 5.6% year over year on the back of higher revenues.

In the third quarter, total revenues rose 17% to $19 billion from the year-ago period, primarily aided by the Health Insurance Marketplace business, expansions and new programs across many states in 2018 as well as 2019.

Moreover, the top line surpassed the Zacks Consensus Estimate by nearly 3.3%. However, this upside was offset by the health insurer fee moratorium to some extent.

Quarterly Operational Update

As of Sep 30, 2019, managed care membership came in at 15.3 million, up 6% year over year.

Health Benefit Ratio (HBR) for the reported quarter was 88.2% compared with 86.3% in the prior-year period.

Adjusted Selling, General & Administrative (SG&A) expense ratio was 8.8% for the third quarter of 2019 compared with 10% for the same period last year.

Financial Update

As of Sep 30, 2019, the company's cash and cash equivalents totaled $6.2 billion, up 16.3% from the figure at 2018 end.

As of Sep 30, 2019, total assets were up 10.8% from the level as of Dec 31, 2018.

Centene’s long-term debt summed $6.9 billion, up 4.9% from 2018-end level.
For the first nine months of 2019, cash outflow from operations was $2.1 billion, up 14.2% year over year.

2019 Outlook Retained

Following solid third-quarter results, the company has reiterated its 2019 guidance.

It expects revenues in the range of $73.6-$74.2 billion, same as the earlier projection.

Adjusted EPS is still expected in the band of $4.29-$4.49.
HBR is predicted within 86.6-87.1%.

Adjusted SG & A expense ratio is maintained between 9.1% and 9.6%.

Highlights

Centene’s pending buyout of WellCare won approval from the insurance departments of 17 states. Centene and WellCare announced that the latter’s subsidiary will be selling its Missouri and Nebraska Medicaid plans to Anthem, Inc. However, this sale is subject to certain closing conditions. The strategic move is related to the $17-billion worth pending merger of Centene with WellCare, which is expected to be completed in the first half of 2020.

Centene announced the expansion of its offering in the 2020 Health Insurance Marketplace or exchange. It is extending its existence across 10 markets
 

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 nice Growth Score of B, though it is lagging a bit 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 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 upward for the stock, and the magnitude of these revisions 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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