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Centene's (CNC) Earnings Top Estimates in Q4, Surge Y/Y

Zacks Equity Research

Centene Inc. CNC reported fourth-quarter 2018 adjusted earnings per share of $1.38, beating the Zacks Consensus Estimate of $1.33 by 3.8%. Also, the bottom line improved 42.3% year over year.  

For the fourth quarter, total revenues jumped 29% to $16.6 billion from the year-ago period, primarily aided by a solid Health Insurance Marketplace business in 2018, purchase of Fidelis Care, expansions and new programs across many states in 2018 and reinstatement of the health insurer fee in 2018. However, this upside was partially offset by lower pass-through payments from California and the effect of removal of in-home support services (IHSS) program from California’s Medicaid contract. Moreover, the top line surpassed the Zacks Consensus Estimate by nearly 2%.

Quarterly Operational Update

As of Dec 31, 2018, managed care membership came in at 14 million, reflecting a 14.8% increase over the level on Dec 31, 2017.

Health Benefit Ratio (HBR) for the reported quarter was 86.8% compared with 87.3% in the prior-year period. This contraction of 50 basis points (bps) is mainly due to membership growth in the Health Insurance Marketplace business and the reinstatement of the health insurer fee in 2018. However, this downside was partially offset by the buyout of Fidelis Care.

Adjusted Selling, General & Administrative (SG&A) expense ratio of 9.9% for the fourth quarter of 2018 compared with 10.5% for the same period last year. This decline of 60 basis points year over year is due to the impact of Fidelis Care acquisition. However, the same was partially offset by growth in Health Insurance Marketplace business and on account of the removal of IHSS program from California's Medicaid contract.

Centene Corporation Price, Consensus and EPS Surprise

Centene Corporation Price, Consensus and EPS Surprise | Centene Corporation Quote

Financial Update

As of Dec 31, 2018, the company's cash and cash equivalents totaled $5.3 billion, up 31.1 % from the figure at 2017 end.

As of Dec 31, 2018, total assets were up by 41.4% year over year to $30.9 billion.

Centene’s long-term debt summed $6.6 billion, up 41.6% year over year.

For 2018, cash outflow from operations was $1.2 billion, down 17.1% from 2017’s level.

Capital Deployment

On Dec 12, 2018, the company’s board of directors announced a two-for-one split of its common stock in the form of a 100% stock dividend, payable Feb 6, 2019 to shareholders of record on Dec 24, 2018.

2019 Outlook

Following strong 2018 results, the company has issued an outlook for 2019 earnings. It expects its total revenues to be in the band of $70.3-$71.1 billion.

Adjusted EPS is forecast between $4.11 and $4.31.

The company projects its HBR to range from 86.5% to 87%.

In 2019, adjusted SG&A expense ratio is estimated between 9.3% and 9.8%.

The company anticipates its shares outstanding in the range of 421.5-422.5 million.

Full-Year Highlights

For 2018, the company delivered an adjusted EPS of $7.08, up 40.8% year over year.

Revenues for the full year came in at $60 billion, mirroring an improvement of 24.3% year over year.

Health benefits ratio (HBR) for the full year stands at 85.9% compared with 2017's tally of 87.3%.

The company reported adjusted SG&A expense ratio of 10.0% for 2018, up by 50 basis points from 9.5% for 2017.

Zacks Rank

Centene carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases From Medical Sector

Some better-ranked stocks from the medical sector are as follows:

Molina Healthcare, Inc MOH is set to report fourth-quarter 2018 earnings performance on Feb 11. The stock has an Earnings ESP of +2.89% and a Zacks Rank #1.

Endologix, Inc. ELGX is slated to announce fourth-quarter earnings numbers on Feb 25. It has a Zacks Rank of 3 and an Earnings ESP of +21.43%.

Tenet Healthcare Corporation THC has an Earnings ESP of +5.63%. This company is a Zacks #3 Ranked player and is scheduled to release fourth-quarter financial figures on Feb 25.

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