Centene (CNC) Reduces 2020 Earnings Estimates, Shares Slide

Centene Corporation (NYSE:CNC) recently updated its guidance for 2020 on the basis of potential Medicaid rate cut and the effect of its WellCare Health acquisition, which was made on Jan 23, 2020. This caused the company’s shares to slip 3% on Tuesday as it closed the day at $54.03 in after-hours trading.

This leading U.S. Health insurer expects its adjusted EPS for fiscal 2020 between $4.56 and $4.76 per share. Previously, this industry giant had anticipated its adjusted annual earnings between $4.64 and $4.84 per share.

Centene also projects its sales in the $104.8-$105.6 billion band while earnings per share are estimated between $3 and $3.14 for the year.

Centene is expected to face a headwind of 17 cents per share to its annual adjusted profit due to the potential Medicaid rate cut in New York. This rate cut could also lead to around $200 million of pre-tax net reduction. The company also started taking initiatives to lessen the impact of the potential rates for 2020.

For 2020, health benefits ratio is expected between 85.9% and 86.3% while selling, general and administrative expense ratio is predicted to be 9.3-9.7%.

Adjusted SG&A expense ratio is forecast to be 8.9-9.3% excluding $385 million of acquisition related expenses. Effective tax rate is anticipated to be around 38-40% including the effect of Health Insurer fee.

Guidance Reflection

This revised outlook reflects an impact of 9 cents per share from the timing of the WellCare buyout, which took place on Jan 23, 2020. The transaction strengthens the company’s position to emerge as the largest Medicaid managed care organization in the country with more than 22 million members across 50 US states. Management stated that this guidance includes the effect of the proration of January's results, offset by the lack of a full-year synergy capture and the lower share count due to the buyout timing.

The company’s view also reflects a potential rate decrease that it received from the State of New York on Feb 6, 2020. This rate decline can thereby affect its GAAP and adjusted earnings figure.

Share Price Performance

Shares of this Zacks Rank #3 (Hold) company have gained 6.7% in a year’s time, outperforming its industry’s growth of 4.5%. The stock price performance looks subdued when compared with the other players in the same space, such as Molina Healthcare, Inc (NYSE:MOH) , Humana Inc. (NYSE:HUM) and The Joint Corp. (NASDAQ:JYNT) , which have rallied 7.3%, 34.1% and 25.6%, respectively, over the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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