Morningstar

Centene Earnings: Management Resets Outlook Through 2024 but Leaves Long-Term View Intact

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Securities In This Article
Centene Corp
(CNC)

Narrow-moat Centene CNC turned in strong first-quarter results, and the company increased its guidance for the full year. However, given emerging headwinds primarily in Medicaid and Medicare Advantage, management reduced its expectations for 2024 before reiterating its long-term guidance for 12% to 15% growth on that reduced 2024 EPS base. Despite the emerging 2024 headwinds, we do not anticipate changing our $87 fair value estimate, which is based on much longer-term assumptions that haven’t changed materially.

In the quarter, revenue grew 5% year over year on strength in Medicaid (7% membership growth) and the individual exchanges (52%) that offset emerging headwinds in Medicare Advantage (down 7%) related to weak star ratings and a tough comparable period. With strength in Medicaid and the exchanges along with internal cost initiatives (like improving gross margins through bid discipline, reducing SG&A expenses as a percentage of sales by centralizing and automating certain functions, and rationing real estate) and share repurchases, Centene’s adjusted EPS grew 15%.

Going forward, management increased its 2023 outlook on both the top and bottom lines, reduced expectations for 2024, but kept its longer-term outlook intact. Specifically, for 2023, Centene increased its revenue guidance range on the extension of Medicaid revenue prior to redeterminations and better-than-anticipated individual exchange enrollment. Also, Centene increased its adjusted EPS guidance to at least $6.40 (or at least 11% growth) from a range of $6.25 to $6.40 previously, which is mildly higher than our previous expectation. However, management reduced its 2024 EPS guidance to at least $6.60, down from at least $7.15 previously, primarily as the firm updated its view on Medicaid redetermination effects and its Medicare Advantage bid strategy. Beyond that, management still aims for 12% to 15% growth annually through the end of the decade, which long-term investors should appreciate.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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