Centene Reaffirms Guidance, But Is it Too Late?

Key Points

• Centene, the country's largest Medicaid managed care organization (MCO), acknowledged turbulence regarding government payments and utilization rates but reaffirmed its 2024 guidance.
• The UnitedHealth Group CEO commented that it would take a multi-quarter cycle for state payments to synchronize with utilization rates and adequately cover Medicaid patient costs.
• Investors are growing more cautious about the accelerating headwinds in the future of Medicare and Medicaid MCOs.

Managed care health insurance company Centene Inc. NYSE: CNC recently saw its share rebound after reaffirming its guidance. This move came just after UnitedHealth Group Inc. NYSE: UNH made bearish comments regarding disturbance going forward in Medicaid utilization and pay rates.

Centene is the country's largest Medicaid-managed care company. At the Bernstein 40th Annual Strategic Decisions Conference, Centene acknowledged turbulence with Medicaid but also reiterated its full-year 2024 outlook. Meanwhile, most health insurance carriers participating in government-sponsored healthcare programs are underperforming the markets in 2024, with the exception of The Cigna Group NYSE: CI, which sold its Medicare business.

This medical sector company competes with managed care health insurance providers in the Medicare and Medicaid segment, including Humana Inc. NYSE: HUM, UnitedHealth Group Inc., and Molina Healthcare Inc. NYSE: MOH.

Headwinds Growing for Medicaid Managed Care Organizations (MCOs)

Medicaid is arguably the least-liked health insurance program among providers, as reimbursements can be minimal and arduous to attain. Medicaid is a joint federal and state government-sponsored health insurance program for needy and low-income state residents. State governments have contracted with various managed care organizations (MCOs) to administer risk-based managed care services and maintain the network of providers to accommodate the patient members.

Medical Providers Dread the MCOs

Medical providers have long complained about Medicare and Medicaid MCOs for low reimbursement rates and for finding increasingly creative ways not to pay out their medical claims. Somehow, these programs have become cash cows for the MCOs, and they are facing more scrutiny than ever regarding the outsized profits the MCOs are making while providers receive less money.

Rumblings from Medicare Advantage

Medicare Advantage (MA) is a managed care option for Medicare recipients that covers more services and drugs for around the same price as Medicare. Recently, utilization rates have skyrocketed, causing MA MCOs like Humana to lower their earnings forecasts. Additionally, the Centers for Medicare and Medicaid Services (CMS) have taken note of the vast profits being made off the backs of the taxpayers and have clamped down on pay rates. State-level eligibility reviews for Medicaid have resumed after COVID protections expired.

 CNC Breaking Down Through the Daily Rectangle

The daily candlestick chart on CNC illustrates a breakdown under the rectangle pattern. This pattern is comprised of a flat-top upper trendline resistance at $78.91 and a flat-bottom lower trendline support at $71.70. The breakdown occurred when CNC collapsed through the lower trendline support. Shares fell to $67.05, forming a daily market structure low (MSL) trigger at $71.59. If CNC can bounce back through the lower trendline at $71.70, it would keep the rectangle pattern intact, but a rejection there would confirm the breakdown. The daily relative strength index (RSI) bounced off the oversold 30-band. Pullback supports are at $67.05, $63.55, $60.83 and $57.59.

Were Centene's Q1 2024 Earnings the Calm Before the Storm?

On April 26, 2024, Centene reported Q1 2024 EPS of $2.26, beating $2.06 consensus analyst estimates by 20 cents. Revenues rose 3.9% YoY to $40.41 billion, beating $36.43 billion consensus estimates. Marketplace membership increased 41% YoY.

Centene's Upside Guidance

Centene issued upside guidance for full-year 2024 EPS of over $6.80 versus $6,77 consensus estimates. Full-year revenues are expected between $147.5 billion and $150.5 billion versus $146.33 billion.

Centene reaffirmed this guidance on May 31, 2024, at the Bernstein conference. It also confirmed a medical benefits ratio (MBR) of 87.3% to 87.9%, which is the percentage of premiums paid out in medical claims. Centene also noted that claims receipts were higher in April and May, which indicates higher medical costs than anticipated.

Centene CEO Sarah London commented, "Centene's first quarter results demonstrate the strength of our diversified platform. We are pleased to raise full-year 2024 guidance as we look to maximize the positive momentum being generated by our core businesses. We are executing against our strategic plans for growth and increasing access to affordable, high-quality healthcare for our members and the communities we serve."

Centene analyst ratings and price targets are on MarketBeat.