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What You'll Want to Know About Centene's Terrific Q3 Results

By Keith Speights - Updated Oct 22, 2019 at 4:10PM

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Great revenue and earnings growth made investors happy with the health insurer's latest performance.

There has been good news and bad news for Centene (CNC 2.80%) this year. The health insurer reported strong second-quarter results in July. But its share price has dropped like a brick throughout much of 2019. 

The company announced its third-quarter results before the market opened on Tuesday. This time, there was plenty of good news for investors. Here are the highlights from Centene's Q3 update.

Hand holding jigsaw puzzle piece with Medicaid printed on it

Image source: Getty Images.

By the numbers

Revenue jumped 17% year over year in the third quarter to almost $19 billion. Analysts estimated that the company's revenue for the third quarter would come in at $18.4 billion.

The company posted net income in the third quarter of $95 million, or $0.26 per share, based on generally accepted accounting principles (GAAP). This was a major improvement upon Centene's result in the prior-year period, when the company announced GAAP net income of $19 million, or $0.05 per share.

Centene announced Q3 adjusted net income of $0.96 per share, compared with $0.89 per share in the same period in 2018. This narrowly beat the average analysts' earnings estimate of $0.95 per share.

Behind the numbers

The steady rise in revenue stemmed in large part from growth in the Health Insurance Marketplace business. This included new programs in states including Arkansas, Illinois, Iowa, New Mexico, and Pennsylvania. In addition, Centene's review increased from its recent acquisition of Spanish healthcare company Ribera Salud.

Centene's bottom-line improvement looked even better than its revenue growth for a simple reason: Costs rose more slowly than revenue did. One big factor was that the company spent significantly less on selling, general, and administrative expenses than it did in the prior-year period.

Other notable developments for Centene subsequent to the end of the third quarter included:

  • The company's board of directors approved a $500 million increase to its stock buyback program.
  • Centene, Walgreens Boots Alliance, and RxAdvance announced a partnership to launch a new model for pharmacy management.
  • Carolina Complete Health, Centene's joint venture in North Carolina, received an additional Medicaid managed care services region. This brings the total number of regions served by Carolina Complete Health to three, with the new contract scheduled to take effect in February 2020.

Looking ahead

Centene anticipates revenue to come in between $73.6 billion and $74.2 billion in full-year 2019. The company also projects 2019 adjusted earnings per share will be between $4.29 and $4.49.

CEO Michael Neidorff stated that Centene will continue to "further enhance our leadership position in government-sponsored healthcare." One key part of making that happen is the company's pending merger with WellCare Health Plans.

Any investor who follows healthcare stocks knows that such big deals can run into roadblocks with regulators. But Centene should be helped by a deal where Anthem will buy WellCare's Medicaid plans in Missouri and Nebraska. This divestiture should help clear the way for Centene's merger with Wellcare.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Centene Corporation Stock Quote
Centene Corporation
CNC
$96.64 (2.80%) $2.63
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$40.59 (1.30%) $0.52
WellCare Health Plans, Inc. Stock Quote
WellCare Health Plans, Inc.
WCG

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