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Why Is Centene (CNC) Up 23.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Centene (CNC). Shares have added about 23.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Centene's Q1 Earnings Miss Estimates, Hikes '21 View

Centene reported first-quarter 2020 adjusted earnings per share of $1.63, which missed the Zacks Consensus Estimate by 1.2%. However, the bottom line improved 89.5% year over year attributable to higher revenues, partly offset by elevated operating expenses.

In the first quarter, total revenues improved 15% year over year to $30 billion resulting from the WellCare buyout and the continuing suspension of Medicaid eligibility redeterminations. However, this uptick was partly offset by lower Marketplace membership, state premium rate adjustments and risk sharing mechanisms. Also, the top line outpaced the consensus mark by 2.1%.

Quarterly Operational Update

As of Mar 31, 2021, managed care membership totaled 25.1 million, which climbed 5% year over year attributable to robust Medicare and Medicaid businesses.

In the reported quarter, Health Benefits Ratio (HBR) came in at 86.8%, which improved 120 basis points (bps) year over year. The reason can primarily be attributed to reduced medical utilization trends stemming from the COVID-19 pandemic and decline in flu-related costs, partly offset by increased pandemic-related testing and treatment costs, state premium rate adjustments and risk sharing mechanisms.

Adjusted selling, general and administrative (SG&A) expense ratio was 8.1% in the quarter, down 50 bps year over year. The ratio received a boost from the continuing suspension of Medicaid eligibility redeterminations and lower compensation costs stemming from restructuring activities.

Financial Update

As of Mar 31, 2021, the company's cash and cash equivalents amounted to $9.6 billion, which plunged 10.9% from the 2020-end level.

Total assets as of Mar 31, 2021 climbed 2.3% from the 2020-end figure to $70.3 billion.

Centene’s long-term debt was $16.7 billion, which inched up 0.1% from the figure at 2020 end.

In the first quarter, net cash provided by operating activities totaled $43 million compared with net cash used in operating activities of $240 million in the prior-year quarter.

2021 Guidance Updated

Concurrent with first-quarter results, the company revised its full-year outlook for 2021. This can be attributable to strong first-quarter 2021 results, with the company anticipating a similar trend in the days ahead.

For the current year, management anticipates revenues to be $120.1-$122.1 billion higher than the previous guidance of $116.1-$118.1 billion.

In 2021, the company’s adjusted EPS is expected to be $5.05-$5.35, up from the previous guidance of $5-$5.30.

This year, HBR is forecast between 87.1% and 87.7%, higher than the previous guidance of 86.6-87.2%.

However, the guidance for adjusted SG&A expense ratio remained unchanged in the range of 8.3-8.8%.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.93% due to these changes.

VGM Scores

Currently, Centene has a subpar Growth Score of D, however its Momentum Score is doing a bit better 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward 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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