Centene (CNC) Down 5.5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Centene (NYSE:CNC). Shares have lost about 5.5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Centene's Q4 Earnings Miss Estimates, Improve Y/Y

Centene reported fourth-quarter 2019 adjusted earnings per share of 73 cents, missing the Zacks Consensus Estimate by 1.4%. However, the bottom line improved 5.8% year over year on the back of higher revenues.

For the fourth quarter, total revenues rose 14% to $18.9 billion from the year-ago period, primarily aided by growth in the Health Insurance Marketplace business, expansions and new programs across many states in 2019 as well as the company’s recent buyouts in Spain. Moreover, the top line surpassed the Zacks Consensus Estimate by 2.2%. However, this upside was offset by the health insurer fee moratorium to some extent.

Quarterly Operational Update

As of Dec 31, 2019, managed care membership came in at 15.2 million, up 8% year over year.

Health Benefit Ratio (HBR) for the reported quarter was 88.4% compared with 86.8% in the prior-year period. This increase can be attributable to the Health Insurance Marketplace business as well as the health insurer fee moratorium.

Adjusted Selling, General & Administrative (SG&A) expense ratio was 9.5% for the fourth quarter of 2019 compared with 9.9% for the same period last year. This contraction of 40 basis points year over year can be attributed to higher revenues and lower variable compensation costs in 2019.

Financial Update

As of Dec 31, 2019, the company's cash and cash equivalents totaled $12.1 billion, up 127% from the figure at 2018 end.

As of Dec 31, 2019, total assets were up 32.7% year over year to $40.9 billion.

Centene’s long-term debt summed $13.6 billion, up 105% year over year.
Net cashflow provided by operating activities as of Dec 31, 2019 was $1.5 billion, up 20.2% year over year.

Highlights

In January 2019, Centene acquired WellCare Health for a total value of $19.6 billion.

Full Update

For 2019, the company came up with adjusted EPS of $4.42, up 25% year over year. Total revenues for the year grew 24% year over year to $74.6 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Centene has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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.