(Bloomberg) -- Centene Corp. shares jumped the most in four years after the health insurer’s third-quarter profits exceeded Wall Street’s expectations, a relief for investors braced for a tough quarter.
Adjusted earnings were $1.62 a share, Centene said Friday, above the $1.41 average of analysts’ estimates compiled by Bloomberg. Profit was lifted by a tax benefit originally expected in the fourth quarter.
The shares rose as much as 14% at the New York market open, the most intraday since March 2020, after losing 17% this year through Thursday’s close.
Higher costs in the US Medicaid safety-net program, where Centene operates private plans, have put insurance investors on edge. While Centene’s medical expenses were above market expectations, it largely dodged the hit that squeezed some rivals’ profits in the third quarter.
Mixed Quarter
“Despite the mixed quarter, results are better than feared,” TD Cowen analyst Ryan Langston wrote in a note.
The insurer affirmed its adjusted profit outlook for the year of more than $6.80 a share, a signal that management expects to have a handle on rising care costs. Centene expects adjusted earnings per share to rise next year and still sees long-term annual growth of 12% to 15%, Chief Executive Officer Sarah London said.
All 30 states where Centene operates Medicaid plans have taken some action to match payment rates with the health needs of members, executives said. It’s “not a matter of if, but when” states make up shortfalls, Chief Financial Officer Drew Asher said.
“There’s more wood to chop with our state partners,” he said on a call with analysts.
What Bloomberg Intelligence Says:
Centene’s better-than-expected 3Q and maintained outlook for full-year 2024 provide additional relief — post-Molina Healthcare results — to a poor start to health insurers’ earnings season. This is despite an industrywide sequential jump in medical-cost trend, driven by state redeterminations-caused acuity shifts in the Medicaid book. Though Centene expects the elevated medical-cost trend to continue through 2024 based on the full-year care cost ratio guidance boost translating to 89.8% care ratio in 4Q, a higher premium and operating revenue forecast was enough to maintain its EPS view.
— Bloomberg Intelligence analyst Glen Losev. Read the research here.
The stock has been whipsawed in recent weeks as rival insurers offered a muddy picture of underlying medical costs. Poor results from Elevance Health Inc. sent Centene’s shares tumbling, as the larger insurer flagged rapidly rising expenses in Medicaid health plans, one of Centene’s specialties. But on Wednesday, a favorable report from Molina Healthcare Inc. lifted the stock.
The company focuses on government-funded health plans, particularly in the Medicaid safety net program. States have purged millions of members from the plans since pandemic-era rules preventing such terminations expired. As some healthier people drop off coverage, insurers are left with unpredictable expenses for the members who remain.
Still, Centene’s third-quarter revenue of $42 billion came in well ahead of analysts’ view, driven by rate increases in Medicaid programs and higher membership in the company’s health insurance exchange business.
(Updates with shares, company and analyst comments from third paragraph.)
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