CNC Financial Analysis

Analysis Date: 2/5/2025

Business Model

Centene Corporation operates as a managed healthcare enterprise, primarily generating revenue through premiums and services from government-sponsored healthcare programs and commercial markets.

Revenue Sources

• Medicaid: Provides managed healthcare services to individuals eligible for state and federal government programs (e.g., TANF, CHIP, ABD, LTSS, MMP).
• Commercial Marketplace: Offers health insurance plans to individuals and families through the Health Insurance Marketplace (Ambetter).
• Commercial Group: Provides employer-sponsored health plans.
• Medicare: Offers Medicare Advantage plans, Medicare Supplement plans, and Medicare Prescription Drug Plans (PDP).
• TRICARE: Provides healthcare services to TRICARE eligibles.
• Other: Includes WellCare Health Plans, and various specialty services, divestitures in this segment impact revenues.

Income Statement Analysis

• Premium and service revenues increased by 2.7% year-over-year, driven by Medicaid rate increases and Marketplace membership growth, offset by lower Medicaid membership due to redeterminations. (Pro)
• Medical costs increased by 3.8%, slightly outpacing revenue growth, resulting in a slightly higher Health Benefits Ratio (HBR). (Neutral to Con, depends on rate adequacy)
• SG&A expenses decreased by 7.4%, leading to an improved SG&A expense ratio, driven by lower Medicare SG&A, divestiture of Circle Health, and expense leveraging. (Pro)
• Earnings from operations significantly improved, turning positive from a loss in the prior year, driven by revenue growth and expense management. (Pro)
• Investment and other income decreased by 14.2%, potentially due to market fluctuations or changes in investment strategy. (Neutral to Con, needs further investigation)
• Net earnings attributable to Centene Corporation significantly increased due to improved operating performance and tax benefits. (Pro)

Balance Sheet Analysis

• Cash and cash equivalents decreased by 18.2% year-over-year, potentially due to share repurchases and operational cash usage. (Neutral to Con, depending on cash deployment strategy)
• Premium and trade receivables increased significantly by 26.9%, indicating potential increase in sales or changes in payment terms, needs further investigation. (Neutral, needs further investigation)
• Other current assets decreased significantly by 71.3%, needs further investigation to understand the driver. (Neutral, needs further investigation)
• Long-term investments increased by 7.0%, reflecting continued investment activities. (Pro)
• Intangible assets decreased by 11.3%, primarily due to amortization. (Neutral, expected depreciation)
• Medical claims liability slightly increased by 1.7%, consistent with revenue growth. (Neutral)
• Accounts payable and accrued expenses decreased by 19.8%, potentially due to efficient expense management or timing of payments. (Pro)
• Return of premium payable increased significantly by 37.3%, reflecting higher expected payouts for premium returns, needs further investigation. (Neutral to Con, depends on program performance)
• Total liabilities decreased by 4.7%, indicating improved financial leverage. (Pro)
• Total stockholders' equity increased by 2.2%, driven by retained earnings, offset partially by treasury stock increase. (Pro)

Capital Allocation

Centene is actively deploying capital through share repurchases, having bought back $3.0 billion of shares in 2024 and authorized for further repurchases. They are also reinvesting in the business, as seen in long-term investments. Dividend policy is not explicitly mentioned in the provided documents, suggesting share repurchases are the primary method of returning capital to shareholders. Management commentary suggests focus on organic growth and potential strategic M&A, especially in areas like ICRA.

Management Commentary

Centene demonstrated significant operational improvements, strengthened our talent bench, and delivered on our financial commitments in 2024.

We enter 2025 with a strong, diversified platform and exciting opportunity to deliver value in each of our core businesses.

Driven by better than expected results during the Medicare annual enrollment period and a program expansion in Medicaid, we are lifting our full year 2025 revenue guidance by $4.0 billion.

Post COVID era eligibility redeterminations generated significant membership transition within the safety net program.

Cash flow provided by operations was only $154 million for the full year, driven by the timing of pharmacy rebate collections, the reduction in risk adjustment payables and a buildup of state premium payments receivable.

Overall Sentiment: Positive to cautiously optimistic. Management expresses confidence in 2025 outlook, driven by revenue growth and operational improvements. They acknowledge challenges from redeterminations and cash flow timing issues in 2024, but emphasize strong positioning and future opportunities. The increased revenue guidance reinforces a positive outlook.

Recommendation

Rating: Hold

Reason for Rating: Hold recommendation based on mixed signals. Positive revenue growth and EPS outlook for 2025 are encouraging. However, significant decrease in operating cash flow in 2024 and increased receivables need to be monitored. While management is optimistic and guiding for growth, some balance sheet items and cash flow performance warrant caution. The increased revenue guidance and stable EPS guidance suggest potential upside, but operational cash flow needs to improve to justify a 'Buy' rating. Further clarity on receivables and cash conversion is needed.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/5/2025, 5:14:36 AM