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Investor Day Provides Clarity on Centene's Massive Guidance Cut

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Looming problems in the Kentucky and Texas area recently forced Centene (NYSE: CNC) to slice guidance by 43%. Earlier this week, the multi-line healthcare enterprise made the decision to reduce 2012 EPS estimates ahead of its second quarter earnings call, and it was not the first medical company to do so as of late. However, Centene's Investor Day helped provide clarity for stunned investors.

The massive estimate reduction followed higher-than-anticipated costs for Centene, which became apparent to the company in the beginning of this month. According to Deutsche Bank, the guidance drop itself was not surprising, but the sheer amount had stunned analysts as the company's financial issues were clearly far worse than anyone anticipated.

Centene had been experiencing a significant upsurge in non-inpatient claims received in the two states, along with increased member assignment costs placing pressure on the business in Kentucky. However, Centene's Investor Day answered many questions the guidance cut left open-ended.

"The company attributed the $1.19 2012 EPS outlook reduction to the following issues: Texas ($0.55), Kentucky ($0.42) and Celtic ($0.22). However, 60-70% of the impact ($0.71-0.83) will be concentrated in Q2:12, as Texas profits should rebound to normalized levels by Q4 (potential September rate increase, June 1st end of Continuity of Care period)," Oppenheimer stated in a research report this morning.

Kentucky's outlook was not as distinct, as the far-off future continues to look unsustainable with no short-term solution to heed the storm.

The good news for Centene? Most of the damage done will affect only one quarter rather than the entire fiscal year. While the company is sure to see lowered estimates and tough times ahead, it can be thankful for the fact that just under three fourths of the impact will be contained and controlled at one time.

Another medical company has been able to slowly turn its luck back around as well. Molina Healthcare (NYSE: MOH), one of the top Medicaid players in the U.S., recently removed its earnings outlook as Texas became a problematic state for it as well.

Medical costs were much higher than expected in the lonestar state and the company's earnings trajectory is cloudy because of it. However, according to J.P. Morgan, Molina is positioned to have above-average revenue opportunity with the near-term Dual Eligible prospect.

While both Molina and Centene have experienced problematic quarters and decreased earnings lately, the medical companies are on the right track to experiencing success once again. With Texas profits on the mend and new monetary opportunities, Centene and Molina should be discharged from business struggles in the next few quarters.

CNC closed yesterday at $28.20, down 14.49% year-to-date, while MOH closed yesterday at $22.35, up ~1% year-to-date.

Latest Ratings for CNC

Jul 2017Morgan StanleyMaintainsOverweight
Jul 2017CitigroupMaintainsSell
Jul 2017UBSMaintainsBuy

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Posted-In: Analyst Color Earnings News Guidance Topics Management Analyst Ratings General Best of Benzinga


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