October 23, 2018 / 10:18 AM / a year ago

Centene's full-year profit forecast disappoints, shares fall

(Reuters) - Centene Corp’s (CNC.N) shares plunged as much as 10 percent on Tuesday after the health insurer forecast full-year profit that was largely below estimates, exacerbating investor concerns over the company’s ability to rein in costs.

The company, which primarily focuses on government-backed health insurance plans, spent $3.75 billion last year to acquire Medicaid-focused Fidelis Care and doubled down on its Obamacare business, a strategy that has paid off and fueled a 36 percent rise in third-quarter revenue.

However the company tightened its full-year adjusted profit forecast and said it now expects to earn between $6.90 and $7.10 per share, compared to a previous target of $6.80 to $7.16 per share.

The midpoint of the range was below Refinitiv estimates of $7.07.

“While the quarter on the surface, appears to be solid, the company simply fine-tuned its adjusted EPS guidance,” Cantor Fitzgerald analyst Steven Halper said. “I think the estimates were just a bit too high for 2018.”

The company’s health benefits ratio, or the amount it spends on medical claims compared with its income from premiums, improved to 86.3 percent in the reported quarter, from 88 percent, a year earlier. A lower ratio is better for health insurers.

The ratio, closely watched by investors to keep a track of costs, would have been 87.3 percent on an adjusted basis, according to analysts who were expecting it to be 87 percent.

“There’s a little bit of concern over the ratio because if you make the one adjustment for the benefit then it might’ve been a touch higher than what folks were expecting,” Halper said.

“Then again I don’t think that that’s a major cause for concern.”

On a post-earnings conference call, Centene said it was working to cut down medical costs over time.

“We continue to see as well as anticipate overall stable medical cost trends,” Chief Executive Officer Michael Neidorff said.

Membership in Centene’s top-earning Medicaid unit rose nearly 22 percent to 8.7 million, contributing $10.91 billion to third-quarter revenue.

Net income attributable to the company fell 91 percent in the quarter to $19 million, or 9 cents per share, after expenses to the tune of $399 million related to the Fidelis acquisition hurt the bottom line.

Excluding items, Centene earned $1.79 per share, compared to the average analysts’ estimate of $1.77 per share.

The company’s shares were down 7.7 percent at $130.56 in the backdrop of a broader slump in the market.

Reporting by Aakash Jagadeesh Babu and Tamara Mathias in Bengaluru; Editing by Shounak Dasgupta

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