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Why Investors Shrugged Off Centene's Mixed Q4 Results

By Keith Speights - Feb 9, 2021 at 12:00PM

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It's all about what the future might hold.

Many stocks delivered solid gains last year. Centene (CNC -2.77%) wasn't one of them. Its shares fell nearly 5% while the overall stock market soared. So far in 2021, the story isn't looking better for the managed-care company.

But Centene announced its fourth-quarter results before the market opened on Tuesday, and shares rose in early trading after the update. Here are highlights from the company's fourth quarter.

Male healthcare provider writing in notebook while looking at laptop.

Image source: Getty Images.

By the numbers

Revenue in the fourth quarter was $28.3 billion, up 50% year over year. This result was only slightly below the average analyst's revenue estimate of $28.36 billion.

The company announced a net loss in the fourth quarter of $12 million, or $0.02 per share, based on generally accepted accounting principles (GAAP). This was a deterioration from GAAP earnings of $209 million, or $0.49 per share, in the prior-year period.

Centene posted adjusted net income in the fourth quarter of $0.46 per share. This was a lot lower than the company's adjusted EPS of $0.73 in the same period of 2019. But it narrowly topped the Wall Street consensus adjusted earnings estimate of $0.45.

Behind the numbers

There were two primary factors behind Centene's significant fourth-quarter revenue growth. The more important of the two was the company's acquisition of WellCare in January 2020. Centene also saw strong growth in its Medicaid and Health Insurance Marketplace businesses thanks in part to expansions of these programs in several states.

The biggest difference showed up in Centene's Medicaid revenue, which jumped 47% year over year to $19.3 billion in the fourth quarter. But the fastest-growing business was Medicare. Centene reported Medicare revenue in the fourth quarter of $3.1 billion, nearly triple the amount generated in the prior-year period. The company also posted Medicare prescription drug program (PDP) revenue of $547 million, compared to no revenue for Medicare PDP in the fourth quarter of 2019. 

Centene's commercial business also delivered solid growth, as revenue increased 17% year over year to $4.2 billion.

Why did the healthcare stock rise on Tuesday with Centene missing Wall Street's revenue estimate and only barely topping the earnings estimate? It's probably because its future looks good.

Looking ahead

Just as the WellCare deal significantly boosted Centene's revenue in the fourth quarter, look for the company's recent acquisitions to make a big impact this year. In particular, Centene's acquisition of specialty pharmacy PANTHERx in December caused the company to adjust its guidance for full-year 2021.

It now expects that revenue for full-year 2021 will be between $116.1 billion and $118.1 billion. The company anticipates GAAP EPS of $3.69 to $3.91, with adjusted EPS between $5.00 and $5.30. 

Another acquisition could also provide a catalyst for the company. Centene announced in January that it plans to buy Magellan Health Services for $2.2 billion.

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Stocks Mentioned

Centene Corporation Stock Quote
Centene Corporation
CNC
$81.77 (-2.77%) $-2.33
Magellan Health, Inc. Stock Quote
Magellan Health, Inc.
MGLN

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