Investors weren’t expecting much from Centene (CNC), if its recent performance has been anything to go by. Centene’s shares had dropped 12% from March 21 through April 21 heading into this morning’s earnings report. The fact that United Health (UNH) had already disappointed thanks to higher costs associated with the Affordable Care Act and Gilead’s (GILD) Sovaldi merely seemed to confirm those expectations.
Which, perhaps, explains why Centene has posted a double-digit gain this morning after reporting what Leerink’s Ana Gupte calls “impressive” results. She explains why the market likes Centene’s reulsts:
[Centene’s] EPS of $0.63 excluding US MM transaction costs ($0.79 excluding the ObamaCare Tax) represented an impressive beat of 20 c relative to consensus of $0.43 and us at $0.44. FY 14 guidance was raised by 10 c to a range of $3.60 to $3.90 though excludes the Health insurance Provider Fees (HIPF). Revenue beat of $184 MM vs. consensus was sizable. The HIPF/Tax posed a headwind of 16 c with [Centene] having already negotiated reimbursements in over half its States, and is expecting additional agreements by year-end. Gilead’s Sovaldi Hepatitis C drug was not mentioned in the release, indicating that the company’s reported 54 cases in March with a very high rate of denial compared to our worst case of 300+ treated cases based on IMS script data continues. Core metrics were decent with a Consolidated Medicaid MLR of 89.3% only missing consensus by 10 bps, while the reported SG&A ratio of 8.8%, which is facing headwinds from upfront investments, still beat consensus by 20 bps. [Centene] has low exposure to the Medicaid expansion States and also expects Exchange enrollment to be at the low end of guidance. Overall, the quarter should offer relief to anxious investors who have been expecting a messy quarter for Managed Medicaid in light of the transitional HIPF and Sovaldi headwinds reported by [United Health], with worries on core fundamentals in this first year of ObamaCare implementation and Dual Eligible demonstrations.
Date: April 22, 2014