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Can Centene (CNC) Navigate Falling Memberships in Q2 Earnings?
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Centene Corporation (CNC - Free Report) is set to report its second-quarter 2024 results on Jul 26, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $1.91 per share, implying a decline of 9.1% from the year-ago reported number. The estimate was revised downward by two analysts in the past month against no movement in the opposite direction, resulting in a decrease of 4 cents from $1.95 per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $36.5 billion, suggesting a 2.9% fall from the year-ago actuals.
Image Source: Zacks Investment Research
Centene beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 10.5%, as you can see below.
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 has an Earnings ESP of -4.40%. This is because the Most Accurate Estimate currently stands at $1.83 per share, lower than the Zacks Consensus Estimate of $1.91.
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.
Now, let’s see how things have shaped up before the second-quarter earnings announcement.
Q2 Factors to Note
Centene's second-quarter performance is expected to have benefited from enhanced volumes and contributions from its Commercial business. The positives are expected to have been amplified by higher premiums, expansions, the launch of new programs across different states and growth in memberships.
Both the Zacks Consensus Estimate and our model estimate for the company’s total commercial memberships indicate a more than 28% year-over-year increase, primarily due to growth in the commercial marketplace. The consensus estimate for Medicare PDP memberships signals more than 36% growth from the year-ago quarter.
Despite the positives, total medical memberships of the company are expected to have declined in the second quarter due to decreases in Medicaid and Medicare memberships. The Zacks Consensus Estimate for overall membership decline is pegged at 2.4%. This is likely to have affected premiums. The Zacks Consensus Estimate for the company’s premiums indicates a 2.1% fall from the prior-year reported level, whereas our model predicts a 3.6% decline.
The consensus estimate for service revenues indicates a more than 25% fall from the year-ago quarter’s $1.1 billion. Moreover, with seniors resuming elective procedures following the pause during the pandemic, CNC’s medical costs are expected to have jumped in the second quarter. This is expected to have resulted in a year-over-year decline in profit margins. The Zacks Consensus Estimate for the total health benefits ratio is pegged at 87.54%, up from 87% in the year-ago period, meaning a reduced portion remaining in hand after paying claims.
These factors are likely to have positioned the company for a year-over-year decline, making an earnings beat uncertain. Nevertheless, the falling cost of services and some other expenses in the quarter under review are likely to have aided the bottom line. Our estimate for the metric suggests a 3.6% year-over-year decline. Also, the Zacks Consensus Estimate for the company’s investment and other income indicates more than 3% year-over-year growth from $425 million. These are likely to have partially offset the negatives.
Price Performance
Centene's stock has exhibited a downward movement, shedding a notable percentage over the year-to-date period. It has declined 10.7% against the industry’s rise of 4.2%. Additionally, the stock underperformed the S&P 500 Index, which rallied 15.8% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Conclusion
Given the potential for continued growth in commercial business and interest income, investors who already have this in their portfolio may want to hold the stock for now and monitor the upcoming earnings results closely. Its declining total memberships and growing cost ratio might affect second-quarter profits. New investors may want to wait for a more favorable entry point.
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:
The Zacks Consensus Estimate for Cigna’s bottom line for the to-be-reported quarter is pegged at $6.42 per share, which was revised upward by a penny in the past month. The estimate signals 4.7% year-over-year growth. The consensus estimate for CI’s revenues is pegged at $58.5 billion, indicating a 20.3% increase from a year ago.
Encompass Health Corporation (EHC - Free Report) has an Earnings ESP of +0.36% and is a Zacks #3 Ranked player.
The Zacks Consensus Estimate for Encompass Health’s bottom line for the to-be-reported quarter is pegged at $1.01 per share, which signals a 6.3% year-over-year rise. The consensus estimate for EHC’s revenues is pegged at $1.3 billion, a 9.9% jump from a year ago. It beat earnings estimates in each of the past four quarters, with an average surprise of 18.7%.
Addus HomeCare Corporation (ADUS - Free Report) has an Earnings ESP of +0.17% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Addus HomeCare's bottom line for the to-be-reported quarter is pegged at $1.20 per share, suggesting a 12.2% year-over-year increase. It beat earnings estimates in each of the past four quarters, with an average surprise of 10.1%. The consensus estimate for ADUS’ revenues is pegged at $283.8 million, predicting a 9.2% increase from the year-ago period.
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Can Centene (CNC) Navigate Falling Memberships in Q2 Earnings?
Centene Corporation (CNC - Free Report) is set to report its second-quarter 2024 results on Jul 26, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $1.91 per share, implying a decline of 9.1% from the year-ago reported number. The estimate was revised downward by two analysts in the past month against no movement in the opposite direction, resulting in a decrease of 4 cents from $1.95 per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $36.5 billion, suggesting a 2.9% fall from the year-ago actuals.
Centene beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 10.5%, as you can see below.
Centene Corporation Price and EPS Surprise
Centene Corporation price-eps-surprise | Centene Corporation Quote
Q2 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 has an Earnings ESP of -4.40%. This is because the Most Accurate Estimate currently stands at $1.83 per share, lower than the Zacks Consensus Estimate of $1.91.
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.
Now, let’s see how things have shaped up before the second-quarter earnings announcement.
Q2 Factors to Note
Centene's second-quarter performance is expected to have benefited from enhanced volumes and contributions from its Commercial business. The positives are expected to have been amplified by higher premiums, expansions, the launch of new programs across different states and growth in memberships.
Both the Zacks Consensus Estimate and our model estimate for the company’s total commercial memberships indicate a more than 28% year-over-year increase, primarily due to growth in the commercial marketplace. The consensus estimate for Medicare PDP memberships signals more than 36% growth from the year-ago quarter.
Despite the positives, total medical memberships of the company are expected to have declined in the second quarter due to decreases in Medicaid and Medicare memberships. The Zacks Consensus Estimate for overall membership decline is pegged at 2.4%. This is likely to have affected premiums. The Zacks Consensus Estimate for the company’s premiums indicates a 2.1% fall from the prior-year reported level, whereas our model predicts a 3.6% decline.
The consensus estimate for service revenues indicates a more than 25% fall from the year-ago quarter’s $1.1 billion. Moreover, with seniors resuming elective procedures following the pause during the pandemic, CNC’s medical costs are expected to have jumped in the second quarter. This is expected to have resulted in a year-over-year decline in profit margins. The Zacks Consensus Estimate for the total health benefits ratio is pegged at 87.54%, up from 87% in the year-ago period, meaning a reduced portion remaining in hand after paying claims.
These factors are likely to have positioned the company for a year-over-year decline, making an earnings beat uncertain. Nevertheless, the falling cost of services and some other expenses in the quarter under review are likely to have aided the bottom line. Our estimate for the metric suggests a 3.6% year-over-year decline. Also, the Zacks Consensus Estimate for the company’s investment and other income indicates more than 3% year-over-year growth from $425 million. These are likely to have partially offset the negatives.
Price Performance
Centene's stock has exhibited a downward movement, shedding a notable percentage over the year-to-date period. It has declined 10.7% against the industry’s rise of 4.2%. Additionally, the stock underperformed the S&P 500 Index, which rallied 15.8% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Conclusion
Given the potential for continued growth in commercial business and interest income, investors who already have this in their portfolio may want to hold the stock for now and monitor the upcoming earnings results closely. Its declining total memberships and growing cost ratio might affect second-quarter profits. New investors may want to wait for a more favorable entry point.
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:
The Cigna Group (CI - Free Report) has an Earnings ESP of +1.59% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Cigna’s bottom line for the to-be-reported quarter is pegged at $6.42 per share, which was revised upward by a penny in the past month. The estimate signals 4.7% year-over-year growth. The consensus estimate for CI’s revenues is pegged at $58.5 billion, indicating a 20.3% increase from a year ago.
Encompass Health Corporation (EHC - Free Report) has an Earnings ESP of +0.36% and is a Zacks #3 Ranked player.
The Zacks Consensus Estimate for Encompass Health’s bottom line for the to-be-reported quarter is pegged at $1.01 per share, which signals a 6.3% year-over-year rise. The consensus estimate for EHC’s revenues is pegged at $1.3 billion, a 9.9% jump from a year ago. It beat earnings estimates in each of the past four quarters, with an average surprise of 18.7%.
Addus HomeCare Corporation (ADUS - Free Report) has an Earnings ESP of +0.17% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Addus HomeCare's bottom line for the to-be-reported quarter is pegged at $1.20 per share, suggesting a 12.2% year-over-year increase. It beat earnings estimates in each of the past four quarters, with an average surprise of 10.1%. The consensus estimate for ADUS’ revenues is pegged at $283.8 million, predicting a 9.2% increase from the year-ago period.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.