Centene (CNC) Up 3.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Centene (CNC). Shares have added about 3.6% 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 Q4 Earnings Beat on Membership Growth, View Up
Centene reported fourth-quarter 2023 adjusted earnings per share (EPS) of 45 cents, which beat the Zacks Consensus Estimate by 4.7%. The bottom line declined 47.7% year over year.
Revenues of Centene amounted to $39.5 billion, which improved 11% year over year. The top line outpaced the consensus mark by 9.6%.
The better-than-expected quarterly results benefited from growing marketplace membership, business wins and commercial growth. However, the positives were partially offset by rising operating expenses and lower Medicaid membership because of redeterminations.
Quarterly Operational Update
Revenues from Medicaid declined 1% year over year to $21.1 billion, while Medicare revenues fell 3% year over year to $5.3 billion. Meanwhile, commercial revenues jumped 68% year over year to $7.4 billion.
Premiums of Centene improved 7.4% year over year to $34.2 billion, which beat our estimate of $32.6 billion. It was propelled by membership growth in the Marketplace business, thanks to solid product positioning and growth in the overall market, partially counteracted by divestitures.
Service revenues of $1.1 billion declined 33.7% year over year in the quarter under review, narrower than our estimate of a decline of 40%.
The total membership of Centene was almost 27.5 million as of Dec 31, 2023, which increased 1.5% year over year but lagged our estimate of 27.8 million. Commercial business memberships witnessed a massive increase in the quarter, offsetting the decline in Medicaid and Medicare memberships.
The Health Benefits Ratio (HBR) of 89.5% for the fourth quarter of 2023 was higher than our estimate of 88.8% and the year-ago period’s 88.7%. The metric was affected by $250 million premium deficiency related to the Medicare Advantage business of 2024.
Centene reported adjusted net earnings of $240 million in the quarter under review, which declined from $485 million a year ago.
Total operating expenses of $39.7 billion increased 10.6% year over year and came above our estimate of $35.7 billion. Medical costs rose 8.4% year over year to $30.6 billion, higher than our estimate of $28.9 billion. Selling, general and administrative expenses (SG&A) of $3.5 billion escalated 9.1% year over year, above our estimate of $3.4 billion.
Adjusted SG&A expense ratio increased to 9.7% in the fourth quarter from 9.3% a year ago but came lower than our model estimate of 10.1%. The metric deteriorated due to an expanding Marketplace business and Medicare distribution costs.
Financial Update (as of Dec 31, 2023)
Centene exited the fourth quarter with cash and cash equivalents of $17.2 billion, which climbed from $12.1 billion at 2022-end. Total assets of $84.6 billion increased from $76.9 billion at 2022-end.
Long-term debt amounted to $17.7 billion, down slightly from $17.9 billion at 2022-end. The current portion of long-term debt amounted to $119 million.
Total stockholders’ equity of $25.9 billion grew from $24.2 billion at 2022-end.
In 2023, the operating cash flow of $8.1 billion increased 28.6% year over year.
Full-Year Update
Total revenues of $154 billion jumped 6.5% from 2022 levels, while adjusted EPS of $6.68 rose 15.6% year over year. Total operating expenses rose 5.5% in 2023 to $151.1 billion.
Share Repurchase Update
Centene bought back 397,000 shares worth $27 million in the fourth quarter. As of Feb 6, 2024, it had a leftover share buyback capacity of $5.2 billion.
Guidance Revised
Premium and service revenues are currently forecasted to be between $134.5 billion and $137.5 billion for 2024, higher than the prior outlook of $132-$135 billion. Last year, the metric was at $140.1 billion. Revenues are estimated to be between $142.5 billion and $145.5 billion, lower than the 2023 figure of $154 billion.
Management reaffirmed its adjusted EPS guidance to be a minimum of $6.70 in 2024, higher than the 2023 figure of $6.68 per share.
Centene expects the health benefits ratio to be in the range of 87.3-87.9% in 2024. Health Benefits ratio for 2023 was 87.7%. The company also estimates the adjusted SG&A expense ratio to be in the 8.4-9% range. It projects the adjusted effective tax rate to be within 24.1-25.1%.
Diluted shares outstanding are anticipated to be in the range of 522.2-525.2 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, Centene has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Following the exact same course, 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 B. 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 these revisions looks promising. Notably, Centene has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Centene belongs to the Zacks Medical - HMOs industry. Another stock from the same industry, Cigna (CI), has gained 2.8% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Cigna reported revenues of $51.15 billion in the last reported quarter, representing a year-over-year change of +11.8%. EPS of $6.79 for the same period compares with $4.96 a year ago.
For the current quarter, Cigna is expected to post earnings of $6.16 per share, indicating a change of +13.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.7% over the last 30 days.
Cigna has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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