Centene Corporation CNC reported first-quarter 2023 adjusted earnings per share (EPS) of $2.11, which lagged the Zacks Consensus Estimate by 5.4%. Nevertheless, the bottom line advanced 15.3% year over year.
Revenues of CNC amounted to $38,889 million, which improved 4.6% year over year. The top line outpaced the consensus mark by 7.1%.
The quarterly results took a hit from escalating medical costs. Nevertheless, the downside was partly offset by a growing premium base stemming from solid membership growth within most of its business lines and numerous contract wins.
Centene Corporation Price, Consensus and EPS Surprise
Centene Corporation price-consensus-eps-surprise-chart | Centene Corporation Quote
Quarterly Operational Update
Revenues from Medicaid rose 5% year over year in the first quarter, while Medicare revenues grew 2% year over year. Meanwhile, commercial revenues climbed 27% year over year.
Premiums of Centene improved 6.1% year over year to $33,825 million, higher than the Zacks Consensus Estimate of $33,104 million and our estimate of $32,936.5 million. This was due to solid membership growth of 52% in the Marketplace business as well as organic Medicaid growth.
Service revenues of $1,127 million dropped 51.9% year over year in the quarter under review. Yet, the metric beat the consensus mark of $816 million.
The total membership of CNC came in at 28.5 million as of Mar 31, 2023, which increased 8.5% year over year and surpassed our estimate of 27.4 million.
Health Benefits Ratio (HBR) of 87% improved 30 basis points (bps) year over year in the first quarter, thanks to disciplined Marketplace pricing and reduced Medicare utilization.
Centene reported net earnings of $1,130 million in the quarter under review, which surged 32.6% year over year.
Total operating expenses of $37,671 million increased 4.8% year over year. Medical costs rose 5.7% year over year to $29,434 million while selling, general and administrative expenses (“SG&A”) of $3,011 million escalated 9.7% year over year.
Adjusted SG&A expense ratio deteriorated 80 bps year over year to 8.5% in the first quarter. The metric suffered a blow from an expanding Marketplace business that operates at an increased SG&A ratio.
Financial Update (as of Mar 31, 2023)
Centene exited the first quarter with cash and cash equivalents of $15,853 million, which climbed 31.3% from the 2022-end figure. Total assets of $83 billion increased 8% from the figure at 2022 end.
Long-term debt amounted to $18,223 million, up 1.6% from the level as of Dec 31, 2022. The current portion of long-term debt amounted to $97 million.
Total stockholders’ equity of $25,166 million grew 4.1% from the 2022-end figure.
In the reported quarter, net operating cash flow of $4,269 million increased almost four-fold year over year.
Share Repurchase Update
Centene bought back 4.9 million shares worth $377 million in the first quarter. As of Apr 25, 2023, CNC had a leftover share buyback capacity of $2.2 billion.
2023 Guidance Revised
Premium and service revenues are currently forecasted between $135.2 billion and $137.2 billion, higher than the prior outlook of $131.5-$133.5 billion. The mid-point of the revised outlook indicates a rise of 0.5% from the 2022 reported figure.
Revenues are estimated to lie between $144.5 billion and $146.5 billion, up from the previous guidance of $137.4-$139.4 billion. The midpoint of the revised outlook implies a 0.7% improvement from the 2022 figure.
Management anticipates adjusted EPS to register a minimum of $6.40 this year, while the earlier view called for the metric to stay between $6.25 and $6.40. The mid-point of the updated outlook suggests a minimum growth of 10.7% from the 2022 figure.
HBR is estimated in the 87.1-87.7% band, compared to the prior outlook of 87.2-87.8%. Adjusted SG&A expense ratio is expected within 8.7-9.1%, higher than the previous guidance of 8.2-8.7%. It also expects an adjusted effective tax rate of 24.1-25.1%.
Diluted shares outstanding are anticipated within 546.6-549.6 million.
2024 Outlook Trimmed
On the basis of an updated view of Medicaid redeterminations, Medicare bid strategy, and business investments, management estimates adjusted EPS to stay higher than $6.60 in 2024. The earlier view called for the metric to be a minimum of $7.15.
Centene remains optimistic to achieve long-term adjusted earnings compound annual growth in the range of 12-15% in the second half of this decade.
Centene currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Medical Sector Releases
Of the Medical sector players that have reported first-quarter 2023 results so far, the bottom-line results of Elevance Health, Inc. ELV, HCA Healthcare, Inc. HCA and Abbott Laboratories ABT beat the respective Zacks Consensus Estimate.
Elevance Health’s first-quarter 2023 earnings of $9.46 per share beat the Zacks Consensus Estimate of $9.26 and our estimate of $9.22. Additionally, the bottom line advanced 15.5% year over year. ELV’s operating revenues improved 10.6% year over year to $41,898 million in the quarter under review. The top line beat the consensus mark by 2.5% and came higher than our estimate of $40,766.5 million. Medical membership of Elevance Health, as of Mar 31, 2023, totaled 48.1 million, which rose 2.9% year over year in the first quarter.
HCA Healthcare’s first-quarter 2023 adjusted earnings of $4.93 per share surpassed the Zacks Consensus Estimate by 23.6%. Also, the bottom line climbed 19.7% year over year. HCA’s revenues advanced 4.3% year over year to $15.6 billion. The top line beat the consensus mark by 2% and our estimate of $15.2 billion. While same-facility equivalent admissions rose 7.5% year over year in the first quarter, same-facility admissions improved 4.4% year over year.
Abbott Laboratories reported first-quarter 2023 adjusted earnings of $1.03 per share, which exceeded the Zacks Consensus Estimate by 5.1%. The adjusted figure declined from the prior-year quarter’s levels by 40.5%. First-quarter worldwide sales of $9.74 billion were down 18.1% year over year on a reported basis. The top line exceeded the Zacks Consensus Estimate by 1.1%. ABT reported an adjusted operating profit of $2.00 billion in the quarter under review, down 41.6% year over year. Adjusted operating margin also contracted 827 bps to 20.5%.
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