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Will Lower Managed Care Profits Hurt Centene's (CNC) Q1 Earnings?

Centene Corporation CNC is set to report first-quarter 2023 results on Apr 25, before the opening bell.

What Do the Estimates Say?

The Zacks Consensus Estimate for first-quarter earnings per share of $2.23 has remained stable over the past week. The estimate suggests a 21.9% increase from the prior-year figure of $1.83 per share. Our estimate of $2.26 per share indicates a 23.2% year-over-year increase. Centene beat the consensus estimate in three of the prior four quarters and missed once, with the average surprise being 4.2%. This is depicted in the graph below:

Centene Corporation Price and EPS Surprise

Centene Corporation Price and EPS Surprise
Centene Corporation Price and EPS Surprise

Centene Corporation price-eps-surprise | Centene Corporation Quote

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The consensus estimate for first-quarter revenues of $36.3 billion indicates a 2.4% decrease from the year-ago reported figure while our estimate suggests a 4.3% decline.

Before we get into what to expect in the to-be-reported quarter in detail, it’s worth taking a look at CNC’s previous-quarter performance first.

Q4 Earnings Rewind

In the last reported quarter, the leading multi-national healthcare company reported adjusted earnings per share of 86 cents, missing the Zacks Consensus Estimate by 1.2% due to an elevated expense level that primarily resulted from increased medical costs. The inclusion of Magellan escalated selling, general and administrative (SG&A) costs for Centene. Nevertheless, membership growth within Medicaid and Medicare businesses partly offset the downside.

Now let’s see how things have shaped up before the first-quarter earnings announcement.

Q1 Factors to Note

Improved volumes and contributions from both Medicaid and Medicare businesses are likely to have benefited CNC’s first-quarter performance. Higher premiums, expansions, new programs across many states and membership growth are expected to have added to the positives.

Medical memberships of the company have been rising over the past several quarters on contract wins and expansion across different regions, and the momentum is expected to have continued in the first quarter. The consensus estimate for overall membership growth is pegged at 3.3% while our estimate predicts a 4.4% increase.

The Zacks Consensus Estimate for the company’s premiums indicates a 3.8% improvement from the prior-year reported level, whereas our estimate suggests 3.3% year-over-year growth. Centene’s performance is expected to have received a boost from its leading nationwide position in government-sponsored healthcare. Also, the Zacks Consensus Estimate for the company’s investment and other income is pegged at $215.8 million, indicating 315% year-over-year growth.

Further, falling operating expenses in the quarter under review are likely to have aided the bottom line, thanks to lower cost of services and premium tax expense. Our estimate for total operating expenses suggests a 4.5% year-over-year decline, positioning the company for significant year-over-year growth.

However, the consensus estimate for service revenues indicates a 65.2% fall from the year-ago quarter, whereas our estimate predicts a 66.1% slump. Also, both the Zacks Consensus Estimate and our estimate for the company’s Managed Care profits for the first quarter suggest a 3.9% year-over-year decline, making an earnings beat uncertain.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Centene this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.

Earnings ESP: The company’s Earnings ESP is -20.54%. This is because the Most Accurate Estimate is currently pegged at earnings of $1.77 per share, much lower than the Zacks Consensus Estimate of $2.23.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Centene currently carries a Zacks Rank #3.

Stocks to Consider

While an earnings beat looks uncertain for Centene, here are some companies from the broader medical space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

Bio-Rad Laboratories, Inc. BIO has an Earnings ESP of +0.16% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Bio-Rad’s earnings per share for the to-be-reported quarter is pegged at $3.24, which remained stable over the past week. BIO beat earnings estimates thrice in the past four quarters and missed once, the average surprise being 27.5%.

AstraZeneca PLC AZN has an Earnings ESP of +1.48% and a Zacks Rank #3.

The Zacks Consensus Estimate for AstraZeneca’s bottom line for the to-be-reported quarter is pegged at 85 cents per share, which witnessed two upward estimate revisions in the past month against none in the opposite direction. AZN beat earnings estimates in all the past four quarters, the average surprise being 7.8%.

Amgen Inc. AMGN has an Earnings ESP of +1.82% and is a Zacks #3 Ranked player.

The Zacks Consensus Estimate for Amgen’s bottom line for the to-be-reported quarter is pegged at $3.84 per share, while the consensus mark for revenues is pegged at $6.2 billion. AMGN beat earnings estimates in all the past four quarters, the average being 3.4%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AstraZeneca PLC (AZN) : Free Stock Analysis Report

Amgen Inc. (AMGN) : Free Stock Analysis Report

Bio-Rad Laboratories, Inc. (BIO) : Free Stock Analysis Report

Centene Corporation (CNC) : Free Stock Analysis Report

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