Earnings Roundup: Centene's Medicaid Miracle

Centene (CNC) joined United Healthcare (UNH) in reporting impressive Medicaid revenue, setting the stage for Molina (MOH) to beat when it reports on May 1st.

Apr 22, 2014 at 6:30PM

Centene (NYSE:CNC) reported better-than-hoped results thanks to surging Medicaid enrollment tied to the launch of Obamacare last fall.

The private Medicaid insurer's results came after UnitedHealth Group (NYSE:UNH), the largest U.S. insurer, reported that Medicaid was its best growing insurance business last quarter.

Despite the highly publicized jump in Medicaid enrollment, investors were apparently caught flat footed. Shares soared more than 12% by mid-day. Given the big pop, let's take a closer look at Centene's first quarter results.

CNC Chart

CNC data by YCharts

A big bump to sales and earnings
Private Medicaid insurers like Centene do all the work behind the scenes for state Medicaid programs. States contract with providers like Centene, United Healthcare, and Molina (NYSE:MOH) to administer those programs, paying a fee based on the number of Medicaid members signed up in each state.

In the first quarter, membership in plans run by Centene climbed 13% to nearly 2.9 million people. 218,000 of those new members were covered by Centene's Medicaid plans. The significant hike in enrollees led to revenue climbing a third to $3.35 billion.

Even better, the costs associated with providing care to those Medicaid members fell. The medical care ratio, or MCR, declined by almost one percentage point from last year.

That led to earnings per share reaching $0.57, up from $0.44 last year, and nicely above Wall Street's pre-earnings expectations for $0.45.

Importantly, the results were strong enough to support Centene upping its full year revenue forecast to $14.2 billion to $14.8 billion. Overall, Centene expects earnings per share to total $3.60 to $3.90 this year. That's up from its earlier prediction of $13.8 billion to $14.3 billion in sales and $3.50 to $3.80 per share in earnings. Given the Street is expecting just $3.62, analysts are likely already updating their models to reflect the potential upside opportunity.

An industry-wide boom
According to the Center for Medicaid and Medicare Services, or CMS, 3 million people signed up for Medicaid following the launch of Obamacare last fall. That growth came in spite of many states opting out of the reform law's Medicaid expansion, which included increasing eligibility to those earning up to 138% of the federal poverty line.

That expansion means that the industry is enjoying the biggest gift since managed Medicaid was introduced in the 1980's.

The first quarter results will give investors additional clarity into how this jump in sales will translate into profit. The early read last quarter, which included new members added in the fourth quarter, was overwhelmingly positive.

At Molina, sales jumped to $1.7 billion in the fourth quarter, up from $1.58 billion a year ago. That lifted full year sales from $5.9 billion to $6.58 billion. While that's solid growth, sales this year should accelerate significantly.

In February, Molina updated its full year 2014 guidance. Molina expects sales to hit $9.9 billion, leading to EPS of between $4 and $4.5. If Molina can deliver on that forecast, it will mark a big improvement from the $3.13 the company posted in 2013.

So far signs suggest that the industry's growth will indeed impress. UnitedHealth Group told investors last week that while commercial enrollment in its plans slumped last quarter, Medicaid enrollment grew 10%. As a result, United's Medicaid revenue grew 17% to $5.2 billion.

Fool-worthy final thoughts
Private Medicaid is a low margin business. Operating margin at Centene and Molina is substantially lower than the much more diversified United Healthcare.

As a result, Centene's business is one uniquely driven by volume, and that's in no short supply this year following the enrollment pop. That suggests investors should continue to be rewarded throughout 2014.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not own positions in the companies mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers