Centene (CNC) Up 4.8% on Upbeat '22 Guidance: Key Details

Centene (NYSE:CNC) Corporation’s CNC shares jumped 4.8% last Friday after it provided an upbeat 2022 outlook. The health care provider has positioned itself to serve the healthcare requirements of one person in every 15 people across all 50 states in the country. Its 2022 guidance incorporates the acquisition of Magellan Health (NASDAQ:MGLN), Inc. MGLN. By the end of this year, CNC expects to close the Magellan Health acquisition.

Centene expects total revenues for 2022 in the range of $135.9-$137.9 billion, up from the 2021 Zacks Consensus Estimate of $126.5 billion. The guided range is also higher than the 2022 consensus mark of $134 billion. The 2022 figure is expected to include $4.4 billion from the Magellan Health acquisition. CNC expects 2021 revenues to be $125.2-$126.4 billion, marginally lower than the consensus estimate.

Adjusted earnings per share are expected within $5.30-$5.50, whose midpoint is higher than the Zacks Consensus Estimate of $5.38 for the same. It also indicates a significant increase from the 2021 consensus mark of $5.11 per share. The company expects the metric for 2021 in the range of $5.05-$5.15 per share. Centene estimated the Magellan Health buyout to be slightly accretive in the first year and add to adjusted EPS in low to mid-single-digit percentage by the second year, which is expected to comprise $50 million in annual net cost synergies.

The bottom line is expected to be supported by lower expenses and gross margin improvement. The adjusted SG&A expense ratio for 2021 is expected within 8.2-8.6% and decline to 7.8-8.3% in 2022. Further, Centene expects to hit adjusted earnings of $7.50-$7.75 per share for 2024, thanks to business expansion and optimization. CNC expects the health benefits ratio for 2021 within 87.6-88%. It estimates the ratio for 2022 to come in at 87.6-88.2%. Capital expenditure for 2022 is expected to be $1 billion.

The company also intends to keep focusing on share repurchases to boost shareholder value. It intends to use the proceeds from the U.S. Medical Management divestment, which concluded on Dec 6, to make $200 million worth of share buybacks for 2021. Centene is also evaluating strategic alternatives for its international business in a bid to optimize its portfolio.

Final Words

Centene’s upbeat outlook boosts investors’ confidence in the healthcare plan providing market. The players in the market have witnessed business growth this year, as the overall economy is recovering fast. With the falling unemployment rate, the number of coverages being bought by employers for their workers is rising and is expected to keep doing so. As such, the bullish outlook bodes well for these companies. Apart from CNC, other companies including UnitedHealth Group Incorporated (NYSE:UNH) UNH and Anthem, Inc. ANTM have also provided upbeat guidance.

UnitedHealth expects 2021 adjusted earnings per share to be $18.75-$18.90, indicating an increase from the 2020 level of $16.88. The figure is likely to further rise to $21.10-$21.60 per share in 2022. The overall increase in the bottom line will likely be supported by lower operating costs. UnitedHealth expects the operating cost ratio to be 14.8% in 2021, suggesting a decline from the last year’s 16.2%. The metric might marginally decrease to 14.5% in 2022. UNH is focused on increasing value for shareholders, backed by rising cash flows. Operating cash flows for 2021 are expected to be $23 billion, implying a marginal increase from the 2020 level of $22.2 billion. For 2022, UnitedHealth expects operating cash flows within $23-$24 billion.

Anthem’s top-line improvement remains impressive, with a four-year CAGR of 9% (2015-2020). We expect the favorable top-line trend to continue, given its strong business growth, membership hike and significant new contracts in the government business. ANTM expects adjusted net income for the current year to be more than $25.85 per share, higher than the previous estimate of $25.50. It has witnessed 18 upward estimate revisions in the past 60 days and no downward movement. Anthem beat earnings estimates thrice in the past four quarters and missed once, with the average surprise being 4.7%.

Price Performance and Zacks Rank

Centene’s shares have increased 31.4% in the past year compared with the industry’s 37.8% rise. The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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