Investment research report for CNC

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Centene Corporation (CNC) is a leading multi-national healthcare enterprise that provides affordable and high-quality products to under-insured and uninsured individuals. The company operates government-sponsored managed care programs, including Medicaid, Medicare, and the Health Insurance Marketplace, as well as commercial healthcare products.

Key Insights

Growth and Diversification

Centene has demonstrated consistent revenue growth driven by strong membership increases across its Medicaid, Medicare, and Marketplace businesses. The company has actively optimized its portfolio through strategic acquisitions and divestitures, enhancing capabilities and focusing on core businesses.

Financial Strength and Capital Allocation

Centene maintains a strong balance sheet, with ample liquidity and a manageable debt level, providing financial flexibility. The company has demonstrated a commitment to returning capital to shareholders through significant share repurchases funded by robust cash flow generation.

Regulatory Environment and Competitive Landscape

Centene has proven its ability to navigate the evolving regulatory landscape, leveraging its diversified business model and experience in government-sponsored healthcare programs. The company faces intense competition from larger and more diversified healthcare companies but maintains a strong position in the Medicaid and government-sponsored healthcare plans market.

Long-term Outlook

Centene’s consistent growth, portfolio optimization efforts, capital deployment strategy, and ability to adapt to regulatory changes position the company well for long-term value creation. However, the company may need to continue expanding its product offerings and geographic reach to maintain its competitive position in the evolving healthcare landscape.

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Valuation Analysis

PE Ratio

The PE ratio for the company CNC is as follows:
– Low: 12.272539246912391
– Base: 23.813397037160016
– High: 35.354254827407644

PB Ratio

The PB ratio for the company CNC is as follows:
– Low: 1.3609158298571633
– Base: 1.8556106267998302
– High: 2.350305423742497

EPS Growth

The EPS growth for the company CNC is as follows:
– Low: -1.95%
– Med: 14.28%
– High: 21.09%

Unable to provide price targets since this company’s financials are highly unstable. We recommend not to hold this stock in your portfolio.

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Industry and Competitors Analysis

Based on the information provided, CNC (Centene Corporation) operates in the healthcare plans industry, specifically focused on providing managed care programs and services to underinsured and uninsured individuals through government-subsidized programs like Medicaid, Medicare, and state children’s health insurance programs. It also offers commercial healthcare products to employers and individuals.

Key Competitors

Some of CNC’s key competitors in this industry include:

  1. UNH (UnitedHealth Group Incorporated): A major diversified healthcare company with a strong presence in the Medicare Advantage and Medicaid markets, as well as commercial health insurance.

  2. HUM (Humana Inc.): A leading provider of Medicare Advantage plans, as well as commercial health insurance products.

  3. ELV (Elevance Health Inc., formerly Anthem): A large health benefits company offering a range of medical, digital, pharmacy, and clinical solutions.

  4. CVS (CVS Health Corporation): A healthcare company with a significant presence in pharmacy benefit management and retail pharmacy, as well as offering health insurance plans.

  5. CI (Cigna Corporation): A global health services company with a strong presence in the commercial and government-sponsored healthcare plans market.

  6. MOH (Molina Healthcare, Inc.): A managed care company focused on providing healthcare services to low-income families and individuals through Medicaid and Medicare programs.

Competitive Positioning

In terms of competitive positioning, CNC appears to be a major player in the Medicaid and government-sponsored healthcare plans market, with a strong focus on serving underinsured and uninsured individuals. However, it faces intense competition from larger and more diversified healthcare companies like UNH, HUM, ELV, and CVS, which offer a broader range of healthcare products and services.

CNC’s financial metrics, such as revenue growth, profitability ratios, and balance sheet strength, suggest a relatively stable and profitable business, but it may need to continue expanding its product offerings and geographic reach to maintain its competitive position in the evolving healthcare landscape.

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Chart of Competitors

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Financial Analysis

Financial Strength

The company has maintained a relatively stable current ratio around 1.1, indicating decent liquidity to cover short-term obligations. The debt-to-equity ratio has been gradually declining from around 1.1 in 2019 to 0.67 in Q1 2024, suggesting improving leverage and financial risk profile. Interest coverage ratios have been mostly above 3-4x in recent years, indicating adequate ability to service debt obligations.

Potential for Growth

Revenue growth has been positive in most quarters, with a 3-year revenue growth per share of around 40-50%, suggesting solid top-line expansion. The company operates in the healthcare sector, particularly focused on government-sponsored programs like Medicaid, which could provide opportunities for growth given demographic trends. Analyst estimates project revenue growth of around 10-15% annually over the next few years.

Competitive Advantage

Centene’s focus on government-sponsored healthcare programs like Medicaid could provide a competitive advantage, as these markets have high barriers to entry and regulatory requirements. The company’s scale and diversified product offerings across multiple states could also be a competitive strength.

Quality of Management

Profitability metrics like return on equity and return on assets have been somewhat volatile but generally positive, indicating reasonable capital allocation by management. The gradual improvement in leverage ratios suggests prudent financial management.

Shareholder Friendliness

The company does not currently pay dividends, which could be seen as less shareholder-friendly. However, the lack of dividends could also indicate a focus on reinvesting profits for growth.

Valuation

The price-to-earnings ratio has varied significantly but has generally been in the range of 10-20x in recent years, which could be considered reasonable for a healthcare company with growth potential. Analyst estimates project EPS growth of around 10-15% annually over the next few years, which could support further share price appreciation if achieved.

Overall, Centene appears to have a reasonably strong financial position, growth prospects in its core markets, and a competitive advantage in the government-sponsored healthcare space. However, the lack of dividends may be less appealing to income-oriented investors. The company’s valuation seems fair based on its growth prospects and industry comparisons.

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Earnings Call Multi-Year Analysis

Operational Efficiency and Modernization

Centene is focused on driving operational efficiency and modernizing its infrastructure through initiatives like automating workflows, consolidating platforms, and optimizing real estate footprint. These efforts are aimed at improving the experience for members, providers, and partners while expanding margins.

Medicaid Redeterminations

Medicaid redeterminations as the COVID-19 public health emergency ends are a major area of focus. Centene is working closely with state partners to ensure appropriate rate adjustments, maximize coverage continuity for members, and facilitate transitions to marketplace plans when needed. This process introduces some near-term uncertainty but also growth opportunities.

Medicare Advantage Investments

In the Medicare Advantage business, Centene is making investments to improve Star ratings and quality metrics, which is critical for sustainable profitable growth. However, this has created a near-term headwind as ratings declined temporarily.

ACA Marketplace Opportunities

The ACA marketplace business has been a strong growth driver, with Centene’s Ambetter plans performing well. The company sees further opportunities in this segment, especially from competitors exiting markets.

Value-Based Care and Data/Technology

Centene remains committed to expanding value-based care arrangements and leveraging data/technology to enhance care management capabilities across its government-sponsored healthcare businesses.

Capital Allocation and Portfolio Optimization

The company is taking a disciplined approach to capital allocation, divesting non-core assets, and optimizing its portfolio to focus on areas of strategic advantage.

While navigating near-term challenges transparently, Centene’s management team remains confident in achieving its long-term growth and margin expansion targets supported by operational initiatives and a diversified business model serving government programs.

In summary, Centene appears focused on operational excellence, strategic positioning, and sustainable profitable growth as it manages through industry dynamics and policy changes impacting its core Medicaid, Medicare, and marketplace businesses.

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Financial Statements Multi Year

Revenue and Membership Growth

Centene has demonstrated consistent revenue growth driven by strong membership increases across its Medicaid, Medicare, and Marketplace businesses. This growth has been fueled by organic expansion, new state contracts, and strategic acquisitions.

Profitability and Cost Management

While Centene’s profitability has faced some headwinds from higher medical costs and legal settlements, the company has generally maintained stable medical cost ratios and improved operational efficiency through cost management initiatives.

Portfolio Optimization

Centene has been actively optimizing its business portfolio through strategic divestitures and acquisitions, such as the Magellan Health acquisition, to streamline operations, enhance capabilities, and focus on core businesses.

Capital Deployment

The company has demonstrated a strong commitment to returning capital to shareholders through significant share repurchases funded by divestiture proceeds and robust cash flow generation.

Regulatory Environment

Centene has proven its ability to navigate the evolving regulatory landscape, including Medicaid redeterminations, Medicare Star ratings, and changes to the Affordable Care Act, leveraging its diversified business model and experience in government-sponsored healthcare programs.

Financial Strength

Centene maintains a strong balance sheet, with ample liquidity and a manageable debt level, providing financial flexibility to support growth initiatives and capital allocation priorities.

Overall, Centene’s consistent growth, portfolio optimization efforts, capital deployment strategy, and ability to adapt to regulatory changes position the company well for long-term value creation, despite some near-term profitability challenges.

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Insider Trading Analysis

Long-Term Patterns

The CEO (NEIDORFF MICHAEL F) has been actively managing his ownership, with large gift transfers and sales over the past few years. This suggests he may be diversifying his personal holdings.

Several other top executives like DITMORE ROBERT K, STEWARD DAVID L, and THOMPSON TOMMY G have also received significant stock awards and grants over time, indicating alignment with long-term company performance.

Insider buying activity has been relatively limited, with only a few smaller purchases by executives like ROBERTS JOHN R and MURRAY JAMES E.

Short-Term Patterns

There have been a number of recent stock sales by executives like COUGHLIN CHRISTOPHER J, FASOLA KENNETH J, and ROBINSON LORI JEAN, potentially indicating some near-term caution.

However, there have also been some recent stock awards and in-kind transfers, suggesting ongoing confidence in the company’s prospects.

The relatively balanced mix of buying, selling, and stock awards/grants implies the insiders have a range of views on the company’s short-term outlook.

Implications

For long-term investors, the consistent stock awards to top executives point to alignment with the company’s long-term strategy and growth potential.

The more limited insider buying activity may be a neutral signal, as executives could be diversifying personal holdings while still believing in the company’s long-term prospects.

Short-term investors should monitor the balance of buying, selling, and stock transfers, as the mixed signals suggest uncertainty about near-term performance.

Overall, the insider trading patterns suggest a mix of long-term confidence and short-term caution, which investors should weigh carefully when evaluating the company’s outlook.

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Management Compensation Benchmark Analysis

Base Salary Proportion

Based on the executive compensation details provided, the key insights for a long-term investor in Centene Corporation (CNC) are:

The average percentage of base salary out of total compensation for CNC executives is 49.39%. This suggests that a significant portion of executive compensation is tied to base salary rather than performance-based incentives like bonuses or stock awards.

Compared to the other healthcare companies mentioned (Humana and Elevance Health), CNC’s executives have a higher proportion of their total compensation coming from base salary. For Humana, the average base salary percentage is 24.19%, and for Elevance Health, it is 20.61%. This indicates that CNC’s executive compensation structure may not be as closely aligned with long-term shareholder value creation as the other companies.

Alignment with Shareholder Value

The high base salary percentage for CNC executives could imply that their compensation is not as heavily weighted towards variable, performance-based pay. This may not provide the strongest incentives for the executives to focus on long-term value creation for shareholders.

To better align executive compensation with long-term shareholder value, CNC may want to consider increasing the proportion of compensation tied to performance-based incentives, such as stock awards and incentive plan compensation. This would help ensure the executives’ interests are more closely aligned with those of the shareholders.

Conclusion

In summary, the high base salary percentage for CNC’s executives, compared to the benchmarked companies, suggests that the company’s executive compensation structure may not be optimally designed to incentivize long-term value creation for shareholders. Adjusting the compensation mix to include more performance-based elements could help improve this alignment.

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Proxy Statement Analysis

Proxy Statement Overview

The following analysis is based on the latest proxy statement of CNC:

Based on the information provided, I do not have enough confidence to make a definitive assessment about whether the executives at Centene are compensated in a way that aligns with creating long-term shareholder value. The document focuses primarily on Centene’s climate risk exposure and lack of science-based emissions reduction targets, which are important environmental considerations but do not directly address executive compensation structures.

To provide meaningful insights about executive compensation alignment for long-term investors, I would need more specific details on:

  1. The components of executive compensation packages (base salary, short-term incentives, long-term incentives, equity grants, etc.)
  2. The performance metrics and targets used for determining incentive payouts, and whether they prioritize long-term value creation over short-term results.
  3. The vesting periods and holding requirements for equity-based compensation, ensuring executives have skin in the game over multi-year periods.
  4. The presence of clawback provisions to recover compensation in cases of misconduct or financial restatements.
  5. The overall pay mix and whether a significant portion is tied to long-term performance goals aligned with shareholder interests.

Without this level of detail on Centene’s executive compensation program, I cannot confidently evaluate the degree of alignment with long-term shareholder value creation. The climate risk information is valuable from an ESG perspective but does not directly shed light on this specific aspect of corporate governance.

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News Analysis

Acquisitions and Divestitures

Centene has been actively acquiring and divesting various businesses to optimize its portfolio and focus on core areas. Major deals include acquiring Magellan Health for $2.2 billion to boost behavioral health capabilities, acquiring PANTHERx rare pharmacy, and divesting its Spanish and Central European businesses.

Medicaid Contract Wins/Losses

Centene has won several state Medicaid managed care contracts (e.g. Nevada, Ohio, Indiana) which can drive membership growth. However, it also lost some counties in the recent California Medi-Cal contract award.

Earnings/Guidance

Centene has generally been meeting or exceeding earnings estimates in recent quarters driven by solid premium revenue growth from acquisitions and Medicaid expansion. However, higher medical costs remain a headwind.

The company has been raising its full-year earnings guidance, indicating confidence in future performance.

Leadership Changes

There have been some key executive leadership changes announced, including the planned retirement of long-time CEO Michael Neidorff and appointment of Sarah London as the new CEO.

The board has also seen some refreshment with new director appointments.

Overall, the acquisitions and contract wins position Centene for continued growth in government-sponsored healthcare, while divestitures help streamline the business. However, investors will watch how well the company manages medical cost pressures and the incoming leadership transition. The general sentiment seems cautiously optimistic about Centene’s long-term prospects in the managed care space.

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Technical Indicators Analysis

Next Week Trading

The recent price action and technical indicators suggest a neutral to slightly bearish outlook for the next week. The 20-day TEMA is below the current price, indicating a potential downward trend. The RSI is in the neutral range, not signaling overbought or oversold conditions. The short-term moving averages (SMA_20 and SMA_50) are also below the current price, further supporting a neutral to slightly bearish bias in the near term.

Resistance and Support Levels

The key resistance levels to watch are around $73.00 and $74.00, based on the recent price action. The support levels appear to be around $70.00 and $68.00, where the stock has found buying interest in the past.

Short-Term Investor

For short-term investors, the current technical picture suggests a cautious approach. The neutral to slightly bearish outlook in the near term, along with the potential resistance and support levels, may warrant a wait-and-see attitude or a focus on risk management strategies.

Long-Term Investor

For long-term investors, the overall technical picture appears more favorable. The 200-day SMA is still above the current price, indicating a long-term uptrend. However, the recent pullback and the potential for near-term volatility may warrant a more patient approach or a focus on dollar-cost averaging strategies.

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Chart of Valuation History

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Financial Statements Annual

Financial Statements Annual 2024 Q3

Centene’s 2023 Financial Performance Highlights

Centene is a leading provider of government-sponsored healthcare, serving nearly 1 in 15 individuals nationwide through Medicaid, Medicare, and the Health Insurance Marketplace.

In 2023, Centene’s total revenues grew 7% to $154 billion, driven by 88% membership growth in the Marketplace business and increased Medicaid premium tax revenue, partially offset by recent divestitures.

The company’s medical benefits ratio (MBR) remained flat at 87.7% in 2023 compared to 2022, as growth in the lower-MBR Marketplace business and pricing discipline offset the $250 million premium deficiency reserve recorded for the 2024 Medicare Advantage business.

Selling, general and administrative (SG&A) expenses increased to 9.0% of revenues in 2023 from 8.6% in 2022, driven by higher costs in the Marketplace business and Medicare distribution, partially offset by ongoing cost reduction initiatives.

Centene recorded $529 million in impairment charges in 2023, primarily related to the divestitures of Circle Health and Operose Health.

The company generated strong operating cash flow of $8.1 billion in 2023, over 30 times net earnings, enabling $16 billion in share repurchases funded by divestiture proceeds and free cash flow.

Centene ended 2023 with $17.5 billion in cash, cash equivalents and restricted cash, and $17.8 billion in total debt, with a debt-to-capital ratio of 40.7%.

The company’s Medicaid, Medicare, and Marketplace segments all saw revenue growth in 2023, while the Other segment declined due to recent divestitures.

In summary, Centene delivered solid financial performance in 2023, driven by membership growth, pricing discipline, and ongoing cost management, while executing on its strategic portfolio optimization through divestitures.

Financial Statements Annual 2024 Q2

Centene’s 2023 Financial Performance Highlights

Centene is a leading provider of government-sponsored healthcare, serving nearly 1 in 15 individuals nationwide through Medicaid, Medicare, and the Health Insurance Marketplace.

In 2023, Centene’s total revenues grew 7% to $154 billion, driven by 88% membership growth in the Marketplace business and increased Medicaid premium tax revenue, partially offset by recent divestitures.

The company’s medical benefits ratio (MBR) remained flat at 87.7% in 2023 compared to 2022, as growth in the lower-MBR Marketplace business and pricing discipline offset the $250 million premium deficiency reserve recorded for the 2024 Medicare Advantage business.

Selling, general and administrative (SG&A) expenses increased to 9.0% of revenues in 2023 from 8.6% in 2022, driven by higher costs in the Marketplace business and Medicare distribution, partially offset by ongoing cost reduction initiatives.

Centene recorded $529 million in impairment charges in 2023, primarily related to the divestitures of Circle Health and Operose Health.

The company generated strong operating cash flow of $8.1 billion in 2023, over 30 times net earnings, which it used to fund $16 billion in share repurchases.

Centene ended 2023 with $17.5 billion in cash, cash equivalents and restricted cash, and $17.8 billion in total debt, with a debt-to-capital ratio of 40.7%.

The company’s Medicaid, Medicare, and Marketplace segments all saw revenue growth in 2023, while the Other segment declined due to recent divestitures.

In summary, Centene delivered solid financial performance in 2023, driven by membership growth and operational execution, while continuing to streamline its portfolio through strategic divestitures. The company maintained a strong balance sheet and cash flow to support its capital allocation priorities.

Financial Statements Annual 2023 Q3

Strong Membership Growth

Centene increased its managed care membership by 12 million or 5% from December 31, 2021 to December 31, 2022. This was driven by organic Medicaid growth, membership growth in the Medicare business, and the commencement of contracts in North Carolina.

Solid Financial Performance

  • Total revenues increased 15% in 2022 compared to 2021, reaching $144.5 billion.
  • Adjusted diluted earnings per share (EPS) grew 12% year-over-year to $5.78.
  • Operating cash flow was $6.3 billion, or 5.2 times net earnings.

Disciplined Marketplace Pricing and Risk Adjustment

The health benefits ratio (HBR) improved slightly to 87.7% in 2022 compared to 87.8% in 2021, driven by disciplined Marketplace pricing and favorable 2021 risk adjustment recorded in 2022.

Ongoing Portfolio Optimization

Centene completed several divestitures in 2022, including PANTHERx, its Spanish and Central European businesses, and Magellan Rx. These divestitures generated significant gains and allowed the company to focus on its core operations.

Investments in Quality and Transformation

Centene launched a multi-year plan to improve quality across the enterprise, with a focus on enhancing patient experience and access to care. The company also continued to invest in scalable innovation and transformation initiatives.

Strong Capital Position and Deployment

Centene repurchased $30 billion of common stock in 2022 and had $28 billion remaining under its stock repurchase program as of December 31, 2022. The company also repaid debt and maintained a strong balance sheet.

Overall, Centene demonstrated solid operational and financial performance in 2022, driven by membership growth, disciplined pricing, portfolio optimization, and investments in quality and transformation. The company appears well-positioned to continue executing on its strategic priorities.

Financial Statements Annual 2023 Q2

Strong Membership Growth

Centene increased its managed care membership by 12 million or 5% from December 2021 to December 2022, driven by organic Medicaid growth, Medicare membership growth, and the commencement of contracts in North Carolina.

Solid Financial Performance

Total revenues increased 15% year-over-year to $144.5 billion, driven by membership growth and the acquisition of Magellan. Net earnings attributable to Centene were $1.2 billion, with adjusted diluted EPS of $5.78, up from $5.15 in 2021. Operating cash flow was $6.3 billion, over 5 times net earnings.

Ongoing Portfolio Optimization

Centene completed several divestitures in 2022, including PANTHERx, its Spanish and Central European businesses, and Magellan Rx, recognizing significant gains. The company also announced plans to divest Magellan Specialty Health, Centurion, and HealthSmart in early 2023. These divestitures are part of Centene’s value creation strategy to focus on its core business.

Investments in Quality and Transformation

Centene launched a multi-year plan to improve quality across the enterprise, with a focus on enhancing patient experience and access to care. The company is also investing in scalable innovation and transformation initiatives to leverage its data and technology.

Capital Deployment and Balance Sheet Strength

Centene repurchased $30 billion of common stock in 2022, funded primarily through divestiture proceeds and free cash flow. The company maintains a strong balance sheet, with $14.4 billion in cash, cash equivalents and short-term investments as of December 31, 2022.

In summary, Centene delivered solid financial and operational performance in 2022, driven by membership growth, portfolio optimization, and investments in quality and transformation, while maintaining a strong balance sheet and returning capital to shareholders.

Financial Statements Annual 2022 Q3

Strong Revenue Growth

Centene’s total revenues increased 13% in 2021 to $125.98 billion, driven by Medicaid membership growth, Medicare membership growth, and the acquisitions of PANTHERx and Circle Health.

Net earnings attributable to Centene decreased 25% to $1.35 billion, primarily due to a $1.25 billion legal settlement related to Envolve, Centene’s pharmacy benefits manager subsidiary. Excluding this legal settlement, adjusted net earnings increased 5% to $3.04 billion.

Membership Growth

Centene’s managed care membership increased 11 million or 4% to 26.61 million members, driven by growth in Medicaid, Medicare, and Health Insurance Marketplace.

Improved Operational Efficiency

Centene’s adjusted SGA expense ratio improved to 84% in 2021 compared to 89% in 2020, reflecting leverage of expenses over higher revenues and lower acquisition-related costs.

Strong Cash Flows

Centene generated $4.21 billion in operating cash flow in 2021, over 3 times its net earnings, demonstrating the cash generative nature of the business.

Continued Portfolio Optimization

Centene divested its majority stake in US Medical Management and acquired the remaining 60% interest in Circle Health, further streamlining its operations.

Magellan Acquisition

In January 2022, Centene acquired Magellan Health for $26 billion, expanding its behavioral health and specialty pharmacy capabilities.

Overall, Centene demonstrated strong top-line growth, improved operational efficiency, and continued portfolio optimization, though profitability was impacted by the Envolve legal settlement. The Magellan acquisition positions Centene for further growth and integration of its healthcare services.

Financial Statements Annual 2022 Q2

Centene’s Financial Highlights

Centene is a leading multinational healthcare enterprise that provides managed care and specialty services, primarily through government-sponsored healthcare programs like Medicaid, Medicare, and the Health Insurance Marketplace.

In 2021, Centene reported total revenues of $125.98 billion, a 13% increase from 2020, driven by Medicaid membership growth, Medicare membership growth, and acquisitions like PANTHERx and Circle Health.

Centene’s managed care segment accounted for 95% of total revenues in 2021, while the specialty services segment accounted for 5%. The managed care segment saw a 12% increase in revenues, while the specialty services segment saw a 24% increase.

Centene’s health benefits ratio (HBR), which represents medical costs as a percentage of premium revenues, was 87.8% in 2021, up 160 basis points from 2020. This was driven by higher utilization in the Marketplace business, higher COVID-19 testing and treatment costs, and the repeal of the health insurer fee.

Centene’s selling, general and administrative (SG&A) expense ratio improved to 8.6% in 2021 from 9.5% in 2020, benefiting from leveraging expenses over higher revenues and lower acquisition-related costs.

Centene generated $4.21 billion in operating cash flow in 2021, which was 3.1 times its net earnings. As of December 31, 2021, Centene had $13.12 billion in cash and cash equivalents.

Centene completed several acquisitions and divestitures in 2021, including acquiring the remaining 60% interest in Circle Health and divesting a majority stake in US Medical Management (USMM).

Centene’s debt totaled $18.84 billion as of December 31, 2021, with a debt-to-capital ratio of 41.2%. The company has been actively managing its debt through refinancing and redemption activities.

Centene’s membership grew 4% in 2021 to 26.61 million, driven by Medicaid and Medicare growth, partially offset by a decrease in Health Insurance Marketplace membership.

Centene continues to focus on its Value Creation Plan, which aims to drive margin expansion through SG&A savings, gross margin expansion, and strategic capital management initiatives.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q3

Revenue Growth

Total revenues increased 4% year-over-year, driven by membership growth in the Marketplace business due to strong product positioning and overall market growth. However, this was partially offset by recent divestitures in the Other segment and lower Medicaid membership primarily due to redeterminations.

Profitability

The Health Benefits Ratio (HBR) increased slightly to 87.1% from 87.0% in the prior year period, driven by lower Medicare Advantage revenue resulting from the Star quality ratings impact, continued elevated utilization, and higher acuity in Medicaid.

The Adjusted SG&A expense ratio increased to 87.0% from 85.0% in the prior year period, primarily due to growth in the higher SG&A Marketplace business, Medicare distribution costs, and higher acquisition/divestiture costs.

Net earnings attributable to Centene increased 3% year-over-year, driven by higher investment and other income, partially offset by the increase in SG&A expenses.

Segment Performance

Medicaid segment revenues and gross margin declined due to lower membership from redeterminations and higher acuity.

Medicare segment revenues increased but gross margin declined due to the Star quality ratings impact and elevated utilization.

Commercial segment revenues and gross margin increased significantly, driven by strong Marketplace membership growth and improved product margins.

The Other segment saw declines in revenues and gross margin due to recent divestitures.

Cash Flows and Liquidity

Operating cash flows used $456 million in Q1 2024 compared to providing $4.3 billion in the prior year period, driven by timing of experience rebate payments, premium delays, and pharmacy rebate remittance timing.

Investing activities provided $852 million in Q1 2024 primarily from divestiture proceeds.

The company had $17.6 billion in cash and cash equivalents and $19.7 billion in total cash and short-term investments as of March 31, 2024.

The debt-to-capital ratio decreased to 40.0% from 40.7% at the end of 2023, driven by net earnings partially offset by share repurchases.

Overall, Centene demonstrated solid revenue growth, particularly in its Commercial segment, but faced profitability headwinds from higher medical and administrative costs. The company’s liquidity and capital position remain strong, supporting its strategic initiatives and capital allocation priorities.

Financial Statements Quarterly 2024 Q2

Membership Growth

Centene increased its managed care membership by 1.2 million or 5% year-over-year, driven by growth in the Medicaid and Commercial Marketplace segments.

Revenue Growth

Total revenues increased 6% in Q3 2023 and 5% in the first 9 months of 2023, primarily due to membership growth in the Marketplace business. However, recent divestitures partially offset the revenue growth.

Profitability

  • The Health Benefits Ratio (HBR) improved to 87.0% in Q3 2023 from 88.3% in Q3 2022, driven by the higher-margin Marketplace business.
  • The adjusted SG&A expense ratio increased to 86.0% in Q3 2023 from 83.0% in Q3 2022, reflecting the higher SG&A costs associated with the Marketplace business.
  • Adjusted diluted EPS increased to $2.00 in Q3 2023 from $1.30 in Q3 2022, demonstrating improved profitability.

Capital Deployment

  • Centene repurchased $1.6 billion of common stock in the first 9 months of 2023, utilizing divestiture proceeds and free cash flow.
  • The company has $1.3 billion remaining under its $6 billion stock repurchase program, providing flexibility for further capital return.

Divestitures and Portfolio Optimization

  • Centene completed several divestitures in 2023, including Magellan Specialty Health, Centurion, and Apixio, as part of its Value Creation Plan.
  • The company also entered into an agreement to sell its Circle Health Group business, which resulted in a $251 million impairment charge in Q3 2023.

Regulatory and Operational Initiatives

  • Centene is actively engaged in addressing Medicaid redeterminations as the continuous coverage requirement is decoupled from the public health emergency.
  • The company is focused on improving its Medicare Star ratings and quality scores, which impact future revenue.
  • Centene is executing on its Value Creation Plan initiatives, including standardizing its pharmacy operating model and launching a new clinical population health platform.

Overall, the financial statements demonstrate Centene’s ability to drive membership growth, improve profitability, and optimize its portfolio through strategic divestitures, while navigating regulatory changes and operational initiatives to position the company for long-term success.

Financial Statements Quarterly 2024 Q1

Membership Growth

Centene grew its managed care membership by 20 million or 7% year-over-year, driven by strong growth in the Marketplace business as well as the impact of Medicaid membership growth during the public health emergency.

Revenue Growth

Total revenues increased 5% year-over-year, with the Medicaid and Commercial segments seeing the strongest growth at 9% and 26% respectively. This was driven by membership gains and premium rate increases.

Profitability

Centene maintained a stable Health Benefits Ratio (HBR) of 87.0% compared to 86.7% in the prior year period. However, the Selling, General & Administrative (SG&A) expense ratio increased to 86.0% from 82.0% due to the higher-cost Marketplace business.

Divestitures and Capital Allocation

Centene completed several divestitures during the period, including Magellan Specialty Health, Centurion, and Apixio. The company used the proceeds to fund $777 million in share repurchases, demonstrating its commitment to creating shareholder value.

Medicaid Redeterminations

Centene is well-positioned to navigate the upcoming Medicaid redetermination process, with the majority of its Medicaid members covered by its Ambetter Marketplace plans, allowing for a smooth transition.

Medicare Star Ratings

Centene’s decrease in Medicare Star quality ratings in 2023 is expected to adversely impact its 2024 Medicare revenue, prompting the company to focus on quality improvement initiatives.

Liquidity and Capital Structure

Centene maintains a strong liquidity position with $17.5 billion in cash and investments and $2.0 billion available under its revolving credit facility. The company’s debt to capital ratio of 41.1% provides financial flexibility.

Overall, Centene’s diversified business model, focus on value creation, and proactive management of regulatory changes position the company well for long-term growth and shareholder value creation.

Financial Statements Quarterly 2023 Q4

Membership Growth

Centene has seen strong membership growth, increasing by 2.2 million or 8% year-over-year to 28.5 million members. This growth was driven by organic Medicaid expansion and the Marketplace business.

Diversified Revenue Streams

Centene has a diversified revenue base across its Medicaid, Medicare, and Commercial segments, reducing reliance on any single line of business. The Medicaid segment remains the largest contributor at 67% of total revenues.

Profitability and Margins

Centene has maintained strong profitability, with an operating margin of 3.1% and an adjusted net income margin of 3.3%. The company has been able to effectively manage medical costs, with the health benefits ratio (HBR) improving slightly year-over-year.

Capital Deployment

Centene has been actively deploying capital, completing $377 million in share repurchases during the quarter. The company also has $2.4 billion remaining under its share repurchase authorization, providing flexibility for future capital returns.

Divestitures and Portfolio Optimization

Centene has been actively optimizing its portfolio, completing the divestitures of Magellan Specialty Health, Centurion, and HealthSmart. These divestitures align with the company’s strategic focus and are expected to improve profitability going forward.

Regulatory and Legislative Landscape

Centene is well-positioned to navigate the evolving regulatory and legislative environment, including the upcoming Medicaid redeterminations and changes to the Affordable Care Act. The company’s diversified business model and experience in government-sponsored programs should allow it to adapt to these changes.

Overall, Centene’s strong membership growth, diversified revenue streams, profitability, and active capital deployment position the company well for long-term value creation. The company’s focus on portfolio optimization and regulatory adaptability further enhance its outlook.

Financial Statements Quarterly 2023 Q3

Strong Membership Growth

Centene grew its managed care membership by 22 million or 8% year-over-year, driven by organic Medicaid growth and expansion in the Marketplace business.

Solid Revenue and Earnings Performance

Total revenues grew 5% year-over-year, with premium and service revenues increasing 2%. Adjusted diluted EPS increased 15% to $2.11, reflecting disciplined pricing, lower utilization in Medicare, and the impact of recent divestitures.

Successful Execution of Value Creation Plan

Centene completed several key divestitures, including Magellan Specialty Health, Centurion, and HealthSmart, as part of its Value Creation Plan. This allowed the company to focus on its core business and return capital to shareholders through $377 million in share repurchases during the quarter.

Medicaid Redeterminations Represent Opportunity and Risk

The upcoming Medicaid redetermination process, which began in April 2023, presents both growth opportunities as members transition to Centene’s Ambetter Marketplace plans, as well as potential risks if members lose coverage. Centene is well-positioned to navigate this transition.

Medicare Star Ratings Decline

Centene’s Medicare Star quality ratings declined, which will impact 2024 revenue. However, the company has launched a multi-year plan to improve quality and the member experience across its Medicare business.

Solid Liquidity and Capital Position

Centene generated $4.3 billion in operating cash flow during the quarter and had $16.2 billion in cash and investments at quarter-end. This provides ample financial flexibility to execute on strategic initiatives and return capital to shareholders.

Overall, Centene’s Q1 2023 results demonstrate the company’s ability to navigate industry changes, execute on its strategic priorities, and deliver consistent financial performance. The upcoming Medicaid redetermination process and Medicare quality initiatives will be key focus areas going forward.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Streamlining and Modernizing Infrastructure

Centene is focused on streamlining and modernizing its infrastructure to deliver best-in-class experiences for its members, providers, regulators, and state partners. This includes initiatives like automating prior authorization processes and successfully launching in new states like Oklahoma.

Medicaid Redetermination Process

The Medicaid redetermination process is a major focus, with Centene navigating the complexities and working closely with state partners to ensure appropriate matching of rates and acuity. Centene expects to return to a high 89s Medicaid MLR range in 2025-2026.

Medicaid Reprocurements

Centene is executing well on Medicaid reprocurements, winning key contracts in Florida and Michigan, though the Texas protest is still ongoing. This demonstrates the strength of Centene’s Medicaid value proposition.

Medicare Advantage Headwinds

The Medicare Advantage business faces headwinds, with final 2025 funding levels seen as insufficient. Centene is focused on STAR ratings improvements, clinical initiatives, and SG&A actions to navigate this environment.

Marketplace Business Growth

The Marketplace business continues to be a strong growth driver for Centene, with membership more than doubling in the last 2 years and margins within the targeted 5-7.5% range.

Cautious Approach to Medicare Part D

Centene is taking a cautious approach to its 2025 Medicare Part D strategy given changes from the Inflation Reduction Act, including the potential for higher member out-of-pocket costs and bad debt.

Centene is committed to the strategic link between Medicare and Medicaid, seeing the dual-eligible population as a key growth opportunity as regulations pull the programs closer together.

Overall, Centene appears to be navigating a dynamic landscape well, with a focus on operational efficiency, quality improvement, and strategic positioning for long-term growth across its diversified business lines.

Earnings Call Analysis 2024 Q1

Centene is Executing Well and Delivering on Strategic Priorities

Centene is executing well and delivering on its strategic priorities, with strong financial results in 2023 and positive momentum heading into 2024.

The company is navigating the Medicaid redetermination process effectively, with membership and financial performance largely in line with expectations. Centene is working closely with state partners to manage the timing mismatch between membership changes and rate adjustments.

Focused on Improving Medicare Advantage Quality and Stars Ratings

In Medicare Advantage, Centene is focused on improving quality and stars ratings, which it sees as a key driver of margin expansion in the coming years. The preliminary 2025 rate update is viewed as insufficient, and Centene plans to provide feedback and adjust its bids accordingly.

Marketplace Business Performing Well

Centene’s marketplace business is performing well, with stronger-than-expected growth and margin expansion opportunities. The company is closely monitoring demographic trends and the impact of Medicaid redeterminations on its Ambetter membership.

Disciplined Cost Management and Portfolio Optimization

The company remains disciplined on cost management, with ongoing initiatives to drive SG&A efficiency. Centene is also nearing the completion of its portfolio optimization efforts, having divested 10 international assets.

While Centene acknowledges some near-term pressure on Medicare Advantage utilization trends, it believes its 2024 pricing and reserves are adequate to support its guidance. The company is closely monitoring the situation and prepared to make adjustments if necessary.

Overall, Centene appears to be executing well on its strategic priorities and positioning itself for long-term growth, while remaining vigilant in managing near-term challenges. The company’s diversified business model and disciplined approach to operations and capital allocation should be appealing to long-term investors.

Earnings Call Analysis 2023 Q4

Medicaid Redeterminations

Centene is tracking in line with its expectations for membership and acuity changes due to Medicaid redeterminations. Rejoining rates for disenrolled members have been in the mid-20% range, with most members experiencing no break in coverage. Centene expects the majority of redeterminations to be completed by May 2024. The company is partnering with states to enable seamless auto-enrollment for Medicaid members losing eligibility.

Marketplace Performance

Centene’s Ambetter marketplace franchise has outperformed growth expectations, reaching nearly 3.7 million members as of September 30th. The strong marketplace performance is attributed to Centene’s established franchise, brand recognition, and efficient distribution network. Centene expects the retained special enrollment period members to become more profitable in their second year, providing an earnings tailwind for 2024.

Medicare Advantage

Centene’s Medicare Advantage business is undergoing a repositioning to better serve low-income and complex lives. The company’s recent Star ratings results were in line with expectations, with approximately 87% of membership associated with contracts rated 3 stars or higher. Centene is focused on improving operational metrics, such as first call resolution and customer satisfaction, to drive improvements in Star scores over time.

Value Creation Initiatives

Centene is making progress on its operational redesign and technology initiatives, including automating workflows, expanding the use of AI-powered authorization tools, and building out an integrated data fabric. The company is also in the final stages of its portfolio review, having recently announced the divestiture of its Circle Health business in the UK.

PBM Migration

Centene’s PBM migration is a key initiative for 2024, with the teams making significant progress and a successful early migration of one health plan.

Overall, Centene appears to be making solid operational progress, fortifying its core business, and leveraging its scale to better serve its customers. The company’s strong performance in the marketplace and its focus on improving its Medicare Advantage business are notable. Investors should pay close attention to the company’s execution on its value creation initiatives and the impact of Medicaid redeterminations on its membership and financial results.

Earnings Call Analysis 2023 Q3

Medicaid Redeterminations

Centene is closely tracking the Medicaid redetermination process across its 30 active states. They have made 9 million outreach attempts and are actively recapturing members who are initially disenrolled. Centene expects about 65% of the Medicaid membership growth since the pandemic to roll off, which is already factored into their guidance.

Medicaid Rates

Centene is seeing constructive rate conversations with states, with 14 out of 30 states providing rate updates that include acuity adjustments. This is an important lever as Centene navigates the redetermination process.

Medicare Advantage

Centene is focused on improving its Medicare Advantage performance, targeting 85% of members in 3.5-star plans by October 2025. They expect minimal progress in 4-star plans this year but solid overall contract improvement. The Medicare business is currently projected to have an $0.80 loss in 2024.

Marketplace Growth

Centene’s Ambetter Marketplace business continues to outperform, with membership exceeding previous projections. The Marketplace platform is well-positioned to provide coverage to Medicaid members losing eligibility due to redeterminations.

Value Creation Initiatives

Centene is executing on initiatives to streamline its core SG&A and transition to a new PBM contract. They also continue to review their portfolio, including the recent divestiture of Apixio.

Financial Outlook

Centene has increased its 2023 adjusted EPS guidance to at least $6.45 and remains confident in achieving greater than $6.60 in 2024, despite the projected $0.80 loss in Medicare Advantage.

Overall, Centene appears to be navigating the dynamic healthcare landscape well, with a balanced portfolio of businesses and a focus on operational execution and strategic initiatives to drive long-term value.

Earnings Call Analysis 2023 Q2

Medicaid Redeterminations

Centene has updated its 2024 outlook to be more conservative on the potential disconnect between Medicaid rates and acuity during the redetermination process. They expect this to be a temporary issue, but have built in a 50 basis point increase in the Medicaid HBR for 2024 as a precaution. Centene is working closely with state partners to support members through the redetermination process and maximize coverage continuity.

Medicare Advantage Strategy

Centene is using 2024 as an opportunity to “rightsize” its Medicare Advantage membership and focus on its core, lower-income and dual-eligible members. This will result in lower membership but a more profitable book of business. Centene is making investments in own distribution channels, provider enablement tools, and digital capabilities to enhance the Medicare Advantage member and provider experience. Centene is resetting its Stars quality targets, focusing on maximizing 3.5 Star contracts in the near-term and preparing for the new Health Equity Index adjustment.

Enterprise-wide Investments

Centene is making investments in customer experience, quality, and infrastructure across its business lines to accelerate its transformation and future-proof the company. These investments will impact near-term adjusted EPS, but Centene believes they will fortify the foundation and accelerate capabilities for long-term growth.

Long-term Confidence

Despite the 2024 EPS floor reduction, Centene remains confident in its long-term growth algorithm of 12-15% adjusted EPS growth in the back half of the decade. The company views the $6.60 2024 EPS floor as a prudent starting point to apply this long-term growth algorithm.

Overall, Centene is making strategic decisions and investments to position the company for long-term market leadership in government-sponsored healthcare programs, even if it means near-term pressure on earnings. The company appears to be taking a critical and transparent approach to managing the business.

Earnings Call Analysis 2023 Q1

Strong 2022 Performance

Centene had a strong 2022, beating its original adjusted EPS guidance by 7%. It executed well on its value-creation plan and made progress on divestitures.

2023 Outlook

For 2023, Centene expects to be at the top half of its adjusted EPS guidance range of $6.25-$6.40, driven by higher Medicaid and Marketplace revenues, partially offset by softer Medicare Advantage enrollment.

2024 Expectations

For 2024, Centene remains committed to an adjusted EPS floor of at least $7.15, though Medicare Advantage is expected to be a headwind due to STAR score challenges and lower 2024 rate increases. The company sees opportunities in PBM synergies, investment income, and Marketplace.

Medicaid Redeterminations

On Medicaid redeterminations, Centene is focused on optimizing the verification process, ensuring state program rates reflect the changing risk pool, and maximizing the opportunity to transition eligible members to its Marketplace plans.

Medicare Advantage Strategy

In Medicare Advantage, Centene made changes to its distribution strategy to better control the member experience, which impacted near-term sales but should improve operational stability and quality over the long-term.

Regulatory Outlook

The company is critical of the preliminary 2024 Medicare Advantage rate notice, indicating it will provide feedback to CMS, but sees a path to achieving its financial goals in this business.

Overall, Centene appears to be executing well on its strategic priorities, though it faces some near-term headwinds in Medicare Advantage that it is working to address. The company remains focused on long-term value creation.

Earnings Call Analysis 2022 Q4

Executing Value Creation Plan

Centene is focused on executing its value creation plan, including redesigning shared service functions, advancing its portfolio review, and securing a new PBM contract with Evernorth Express Scripts that is expected to deliver significant savings.

Addressing Medicare Advantage Star Ratings Decline

The company is taking aggressive action to address its Medicare Advantage Star ratings decline, including hiring a Chief Quality Officer, centralizing oversight, and making investments to improve member onboarding and quality processes. The goal is to have at least 60% of members in 4-star or higher plans over the next 3 cycles.

Appealing California Medicaid RFP Results

Centene is appealing the California Medicaid RFP results, believing there were serious errors in the decision-making process. The outcome of this appeal could have a $0.25-$0.50 impact on the company’s 2024 earnings target of $7.50+.

Opportunity in ACA Marketplace

The company sees the recent exits of competitors from the ACA marketplace as an opportunity for Centene to grow its Ambetter business through 2023 and beyond, leveraging its stable pricing, strong provider networks, and close partnerships with state regulators.

Monitoring Medicaid Redeterminations

Centene is closely monitoring the potential impact of Medicaid redeterminations when the public health emergency ends, estimating $7.5-$8 billion in revenue could be impacted, with the majority expected in 2024.

Confidence in Long-Term Earnings Growth

Management remains confident in achieving its long-term earnings growth targets, though there are some near-term headwinds from the Medicare Star ratings decline and the California Medicaid contract that the company is actively working to mitigate.

Overall, the call highlights Centene’s focus on operational execution, quality improvement, and strategic positioning to drive long-term profitable growth, while also addressing near-term challenges transparently.

Earnings Call Analysis 2022 Q3

Value Creation Focus

Centene is focused on value creation for members and shareholders, not just earnings per share. This involves simplifying operations, focusing on the core business, and allocating capital to innovation.

Medicaid Growth

Centene continues to grow its Medicaid membership, aided by the ongoing suspension of eligibility redeterminations during the public health emergency. They are preparing for the eventual end of the PHE.

Marketplace Performance

Centene’s marketplace business is performing well, with the company making pricing adjustments and improving execution around risk adjustment. They expect further margin expansion in this segment.

Medicare Challenges

Centene acknowledges that their Medicare Star ratings will be disappointing for 2023, but they are making investments to drive a meaningful rebound in 2025 ratings.

Portfolio Optimization

Centene is actively reviewing its non-core assets and has completed several divestitures, with more potential transactions in the pipeline. This is part of their strategic positioning for 2025 and beyond.

Recession Planning

While state budgets remain stable currently, Centene is working closely with state partners to prepare for the eventual end of the public health emergency and any potential recession impacts.

Transparency on Headwinds

Centene is upfront about challenges like the impact of Medicaid redeterminations and the temporary headwind from declining Medicare Star ratings, demonstrating a commitment to transparency.

Overall, Centene appears focused on executing its value creation plan, optimizing its portfolio, and positioning the business for sustainable long-term growth, while also being transparent about near-term headwinds.

Earnings Call Analysis 2022 Q2

Operational Excellence

Centene is focused on executing a value creation plan to optimize operations and improve the member, provider, and partner experience. This includes initiatives like platform consolidation, real estate optimization, and centralization of functions like utilization management.

Strategic Growth

The company is refreshing its long-term strategy to drive growth beyond the 2024 horizon, with a focus on leveraging its core business strengths and local market approach.

Quality Improvement

Centene is making investments to improve its STAR ratings, which are expected to decline in 2023 and 2024 due to the sunsetting of COVID-era relief provisions. This is a multi-year effort involving member engagement, value-based contracting, and operational improvements.

Policy Navigation

The company is closely monitoring policy developments around the Affordable Care Act exchanges, including the potential expiration of enhanced subsidies and the impact of addressing the “family glitch.” Centene is proactively working with state and federal partners on these issues.

Medicaid Redeterminations

Medicaid redeterminations are expected to resume in August 2022, leading to an estimated $6 billion revenue reduction in 2023. Centene is working closely with states to manage this transition and retain as much membership as possible.

Value-Based Care

The company remains focused on expanding value-based care arrangements, particularly in its Medicaid and Medicare businesses, as a way to improve quality and manage costs.

Overall, the key themes are Centene’s focus on operational excellence, strategic growth, and policy/regulatory navigation – all with the goal of delivering long-term value for shareholders.

Earnings Call Analysis 2022 Q1

Centene Corporation Earnings Call Insights for Long-Term Investors

Centene is executing well across its core business lines – Medicaid, Medicare, and Marketplace. The company saw strong membership growth in 2021 and is well-positioned for 2022.

The company is focused on margin expansion through its value creation plan. This includes initiatives like PBM platform consolidation, call center standardization, and real estate optimization. The company sees opportunities to improve margins in Medicare Advantage in 2023 and beyond.

Centene is being critical of its own performance and is not afraid to make tough decisions. For example, the company is pricing its Marketplace products more rationally to improve margins, even if it means slower growth.

The company is actively reviewing its non-core assets and portfolio through a rigorous evaluation process. This includes considering options for its PBM assets and international businesses.

Centene is closely monitoring the timing and impact of Medicaid redeterminations, which are expected to resume in May 2022. The company believes its broad product offerings can help provide continuity of care for members who may lose Medicaid eligibility.

The company is making progress on its value creation initiatives but cautions that the work is complex. It is providing regular updates on key operational milestones to keep investors informed.

Overall, Centene appears to be taking a disciplined, strategic approach to managing its business and driving long-term value for shareholders, while also remaining focused on serving its members and government partners.

Earnings Call Analysis 2021 Q4

Continued Strength in Medicaid and Medicare Advantage

Centene is seeing continued strength in its Medicaid and Medicare Advantage businesses, which are helping offset some of the volatility in the Marketplace segment. The company expects modest adjusted EPS growth in 2022.

Focus on Margin Expansion

Centene is focused on driving margin expansion through SG&A efficiencies, medical management initiatives, and strategic capital deployment as part of its value creation plan. This includes consolidating down to a single PBM platform and reviewing potential divestitures of non-core assets.

Uncertainty around Medicaid Redeterminations

The timing and impact of Medicaid redeterminations remains uncertain, as it will vary by state. However, Centene believes it is well-positioned with its expanded Medicaid and Marketplace footprint to support members through the transition.

Cautious Outlook for Marketplace Business

Centene is cautious in its outlook for the Marketplace business in 2022, prioritizing margin improvement over pure membership growth. The company is introducing new Marketplace products aimed at optimizing flexibility, access, and affordability.

Caution on Precise Forecasts

Analysts should be critical of any overly precise forecasts from the company regarding the timing and magnitude of headwinds/tailwinds, as many factors remain uncertain. Centene acknowledges the difficulty in predicting state-level Medicaid redetermination timelines.

Strategic Investments in Efficiency

The company’s comments on strategic investments, such as in AI and automation, suggest a focus on driving operational efficiencies to fund future growth initiatives and margin expansion.

Overall, Centene appears to be taking a prudent, diversified approach to navigating the current environment and positioning the business for long-term value creation, though the near-term outlook still contains some uncertainty.

Earnings Call Analysis 2021 Q3

The Delta Variant and Its Impact

The Delta variant of COVID-19 is causing a new wave of the pandemic, particularly impacting the unvaccinated population. Centene is taking this very seriously and monitoring the short-term impact on their business.

Marketplace Business Pressure

Centene’s Marketplace business is facing pressure from higher-than-expected utilization and pent-up demand, which they believe is largely transitory. However, the company is unsure of the exact timing of when this will subside.

Maintaining Guidance and Margin Expansion

Centene is maintaining its full-year 2021 adjusted EPS guidance, reflecting the underlying strength of the business and their ability to manage through a dynamic environment. However, the guidance range remains wide due to the uncertainty around the Marketplace business.

Centene is focused on executing its margin expansion goals and has launched a formal program to achieve its long-term adjusted net income margin target of at least 3.3%. This will be a multi-year journey, with the benefits expected to be more pronounced in 2023 and 2024.

Monitoring Medicaid and Medicare Segments

The company is closely monitoring the potential impact of the Delta variant on its Medicaid and Medicare businesses, but does not currently see significant pent-up demand in those segments.

Optimism for the Marketplace Business

Centene remains optimistic about the long-term opportunity in the Marketplace business, despite the near-term challenges, and is taking actions to mitigate the pressure.

Overall, the key message is that Centene is navigating a dynamic environment, with the Delta variant posing a new set of challenges, but the company is focused on executing its long-term strategy and margin expansion goals.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.