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Centene's (CNC) Q1 Earnings Beat Estimates, Increase Y/Y

Zacks Equity Research

Centene Inc. CNC reported first-quarter 2019 adjusted earnings per share of $1.39, beating the Zacks Consensus Estimate of $1.32 by 5.3%. Also, the bottom line improved 27.5% year over year.  

Total revenues jumped 40% to $18.4 billion in the period from the year-ago figure, primarily aided by the purchase of Fidelis Care, expansions and new programs across many states in 2018 and 2019 besides growth in the Health Insurance Marketplace business in 2019.  Other factors, such as pass through payments contributed to the company’s revenues. However, the same was partially offset by the health insurer fee moratorium in 2019. Moreover, the top line surpassed the Zacks Consensus Estimate by nearly 5%.

Quarterly Operational Update

As of Mar 31, 2019, managed care membership came in at 14.7 million, reflecting a 14% year-over-year increase.

Health Benefit Ratio (HBR) in the reported quarter was 85.7% compared with 84.3% in the prior-year period. This 140-basis point (bps) expansion is mainly owing to the Fidelis Care acquisition and the impact of the health insurer fee moratorium in 2019.

Adjusted Selling, General & Administrative (SG&A) expense ratio in the first quarter was 9.5% compared with 10.3% in the same period last year. This contraction of 80 basis points year over year is due to the impact of the Fidelis Care buyout, which operates at a low SG&A expense ratio.

Centene Corporation Price, Consensus and EPS Surprise

Centene Corporation Price, Consensus and EPS Surprise | Centene Corporation Quote

Financial Results

As of Mar 31, 2019, the company's cash and cash equivalents totaled $6.3 billion, up 18.8 % from the figure at 2018 end.

As of Mar 31, 2019, total assets rose 8.6% from the 2018 end-level to $33.6 billion.

Centene’s long-term debt summed $6.8 billion, inching up 1.9% from the level at 2018 end.

At the end of first-quarter 2019, cash flow from operations was $1.3 billion, down 28.7% from the level as of Dec 31, 2018.

Capital Deployment

In February 2019, the company’s two-for-one stock split of its shares of common stock became effective. In the quarter under review, the company bought back shares worth $35 million.

Updated 2019 Outlook

Following strong first-quarter results, the company has revised its 2019 guidance.

It expects its total revenues in the band of $72.8-73.6 billion, up from the previous projection of $70.3-$71.1 billion.

Effective tax rate has been decreased 50 bps because of the favorable audit results recognized in the first quarter.

Adjusted EPS is predicted in the $4.24-$4.44 range, up from the earlier expectation of $4.11-$4.31. This is because of solid first-quarter results.

HBR is expected within 86.5-87%. Adjusted SG & A expense ratio is estimated between 9.3% and 9.8%.

Acquisition to Date

In March 2019, the company signed a definitive agreement to buy the issued and outstanding shares of WellCare Health Plans, Inc. The transaction, valued at 417.3 billion, is likely to be completed in the first half of 2020, subject to closed conditions.

Zacks Rank

Centene carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases From Medical Sector

Molina Healthcare, Inc MOH is set to report first-quarter 2019 earnings performance on Apr 29. The stock has an Earnings ESP of +3.49% and a Zacks Rank #1.

Community Health Systems, Inc. CYH is set to report first-quarter 2019 earnings performance on Apr 30. The stock has an Earnings ESP of +12.66% and a Zacks Rank #2 (Buy).

Humana Inc. HUM is slated to release first-quarter earnings figures on May 1. This stock has an Earnings ESP of +0.84% and a Zacks Rank of 3.

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