What You Need to Know Ahead of Centene's Q2 Earnings

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Medicaid expansion drove revenue growth at insurers in the first quarter and Centene's shares have rallied to new highs on expectations that growth continued through the second quarter. Over 6 million …

Medicaid expansion drove revenue growth at insurers in the first quarter and Centene's shares have rallied to new highs on expectations that growth continued through the second quarter. Over 6 million people have signed up for Medicaid coverage since the Affordable Care Act launched last fall, providing signficant support for companies like Centene, Molina and Health Net that run state programs.In the following slideshow, I address Centene's exposure to Medicaid enrollment growth and provide insight into key considerations investors should keep in mind when Centene reports earnings on July 22nd.

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  • 1. What You Need To Know Ahead of Centene’s Earnings
  • 2. Centene Corp. • Driving Centene’s success: • Medicaid expansion in 26 states (+DC). • 6 million Medicaid members since last October. • Future growth opportunity: • Significant expansion backlog. • 600,000 remaining applications in California. • CMS letter to six states asking for proposals to clear their Medicaid application backlog.
  • 3. Driving Centene’s revenue First, let’s consider Centene’s revenue sources. •Centene’s membership stretches across government programs.
  • 4. Driving Centene’s revenue •Centene provides insurance in 21 states. •Texas is its biggest market. •Did not expand Medicaid. •Georgia, Florida, Ohio, & Washington are also important markets. •Ohio & Washington are expanding.
  • 5. Revenue outlook •Sales have climbed significantly since 2010. •Guidance is for between $14.2 billion and $14.8 billion in 2014.
  • 6. Competitive landscape •Centene’s quarterly year-over-year growth outpaces Health Net and Molina Healthcare.
  • 7. Earnings outlook •Analysts have been caught flat footed this year. •Estimates for Q2 were lowered from $0.77 to $0.74 over the past 90 days. •2015 estimates have climbed from $4.39 to $4.57
  • 8. Earnings outlook •Centene’s operating margin is consistently better than Health Net and Molina.
  • 9. Fool-worthy thoughts Significant increase in Medicaid expansion enrollment. Potential opportunity in non-expansion states for awareness driven Medicaid membership growth. Cost of care remains ongoing concern. •Expensive new therapies for oncology and hepatitis C. Watch for an update to guidance.
  • 10. Six stock picks poised for incredible growthSix stock picks poised for incredible growthSix stock picks poised for incredible growth This healthcare breakthrough may leave Centene in the dust.