Should You Buy or Sell Centene Stock Before Q3 Earnings Report?

Core Viewpoint - Centene Corporation is expected to report a significant year-over-year decline in earnings and revenues for Q3 2024, with earnings estimated at $1.39 per share and revenues at $37.9 billion, reflecting a 30.5% drop in earnings and a 0.4% decrease in revenues compared to the previous year [1][2]. Group 1: Earnings and Revenue Estimates - The Zacks Consensus Estimate for Q3 earnings indicates a 30.5% year-over-year decline, while revenues are projected to decrease by 0.4% [2]. - The company has beaten consensus estimates in three of the last four quarters, with an average surprise of 9.6% [2]. - The Earnings ESP for Centene is -1.69%, and it holds a Zacks Rank of 4 (Sell), indicating uncertainty regarding an earnings beat this quarter [3]. Group 2: Membership and Premium Trends - Total commercial memberships are expected to increase by over 17% year-over-year, driven by growth in the commercial marketplace [4]. - Medicare PDP memberships are projected to grow nearly 47% from the previous year [4]. - Medicaid memberships are anticipated to decline by around 14% year-over-year, which is likely to negatively impact premiums [5]. Group 3: Cost and Profitability Factors - The Zacks Consensus Estimate for service revenues indicates a more than 24% decline from the previous year's $1.1 billion [6]. - Medical costs are expected to remain elevated due to the resumption of elective procedures, leading to a decline in profit margins, with the health benefits ratio estimated at 88.64%, up from 87% a year ago [6]. - Total operating expenses are estimated to decline by 0.2% year-over-year, while investment and other income is expected to grow over 97% from $214 million [7]. Group 4: Stock Performance and Valuation - Centene's stock has decreased by 17.7% year-to-date, underperforming the industry growth of 2.1% [8]. - The stock is currently trading at 8.45X forward 12-month earnings, below its five-year median of 11.71X and the industry's average of 15.89X, indicating a lack of investor confidence [10]. Group 5: Long-term Prospects and Challenges - Centene's diversified portfolio and expected growth in the commercial marketplace position it for long-term growth, supported by partnerships and acquisitions [12]. - Challenges include high debt levels and rising medical costs, which could impact the company's growth strategy [12]. - While the long-term outlook is promising, the current market conditions may not be favorable for new investments [13].