Why Is Centene (CNC) Down 0.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Centene (CNC). Shares have lost about 0.7% 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 the most recent earnings report in order to get a better handle on the important drivers.

Centene's Q1 Earnings Miss Estimates, Decline Y/Y

Centene reported first-quarter 2020 adjusted earnings per share of 86 cents, missing the Zacks Consensus Estimate by 14.9% due to lower investment income and incremental senior note interest expense. The bottom line also tumbled 38.1% year over year.

For the first quarter, total revenues rose 41% to $26 billion from the year-ago period, primarily aided by the WellCare buyout, growth in Health Insurance Marketplace business, expansions and new programs across many states in 2019 and 2020 as well as the reinstatement of the health insurer fee in 2020. However, this upside was offset by the Illinois health plan divestiture and the timing of pass through payments from New York to some extent.

Meanwhile, the top line surpassed the Zacks Consensus mark by almost 7%.

Quarterly Operational Update

As of Mar 31, 2020, managed care membership came in at 23.8 million, up 61% year over year.

Health Benefit Ratio (HBR) for the reported quarter was 88% compared with 85.7% in the prior-year period. This increase can be attributable to the Health Insurance Marketplace business, WellCare buyout, new or expanded markets, partly offset by the reinstatement of the health insurer fee.

Adjusted Selling, General & Administrative (SG&A) expense ratio was 8.6% for the quarter compared with 9.5% for the same period last year. This year-over-year contraction of 90 basis points can be attributed to the WellCare acquisition and leveraging of costs over higher revenues.

Financial Update

As of Mar 31, 2020, the company's cash and cash equivalents totaled $9.3 billion, down 23.2% from the figure at 2019 end.

As of Mar 31, 2020, total assets were up 62.1% to $66.4 billion from the level at 2019 end.

Centene’s long-term debt summed $17.2 billion, up 25.8% year over year.
Net cash flow used in operating activities as of Mar 31, 2020 was $240 million compared with the cash flow provided by operating activities of $1.3 billion a year ago.

Highlights

In January 2020, Centene acquired WellCare Health for a total value of $19.6 billion.

2020 Outlook

The company now expects revenues in the range of $110-$112.4 billion.
Adjusted EPS is anticipated between $4.56 to $4.76 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 11.02% due to these changes.

VGM Scores

Currently, Centene has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 upward for the stock, and the magnitude of these revisions 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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