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Here’s Why Centene Jumped 22.7% in October

What happened

Shares of Centene (NYSE: CNC) climbed 22.7% higher in October, according to data provided by S&P Global Market Intelligence, boosted by the health insurer's strong third-quarter results.

So what

Revenue was up 17% year over year, thanks to growth in Centene's health insurance marketplace business and new Medicaid contracts and programs. The third-quarter number also benefited from the recent acquisition of Ribera Salud in Spain.

Adjusted earnings clocked in at $0.96 per share, up just 8% year over year, as the health benefit ratio (HBR) jumped 190 basis points to 88.2%. The HBR is medical costs paid by Centene expressed as a percentage of premiums taken in by the company. Investors can think of HBR kind of like the gross margin of health insurers.

About 100 basis points of the year-over-year difference in HBR is attributable to a benefit from the California in-home support services reconciliation in the year-ago quarter. Other nonoperational items in the most-recent quarter made up 80 of the remaining 90 basis points. Finally, new contracts in a few states come with higher HBRs in the first year of operation, which brought up the company's average HBR.

Image source: Getty Images.

Now what

For 2019, management is looking for revenue to land in the $73.6 billion to $74.2 billion range with adjusted earnings between $4.29 and $4.49 per share.

Looking ahead, the healthcare company has already guided for revenue in excess of $79 billion and adjusted earnings around $4.79 per share. Of course, that's all subject to change as Centene closes in on its acquisition of WellCare Health Plans (NYSE: WCG) in the first half of next year.

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Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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