FBR Capital Reiterates Outperform on Centene (CNC) Following 2Q Beat and Raise
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FBR Capital reiterated an Outperform rating and $90.00 price target on Centene (NYSE: CNC) following the company's 2Q earnings report. Revenue was slightly ahead of the consensus of $10.8 billion. Adjusted EPS came in at $1.29, versus the consensus of $1.09. The company raised its full-year 2016 EPS guidance from $4.00–$4.35 to $4.20– $4.55.
Analyst Steven Halper commented, "On July 26, Centene reported strong 2Q16 results. Revenue was slightly ahead of expectations at $10.9 billion. Adjusted EPS were $1.29, versus our estimate of $1.05 and the consensus of $1.09. Results included a $0.19 benefit from reconciliation from 2015 reinsurance and risk corridor adjustments. While the company did not increase Health Net medical claims relating to periods before the acquisition, it recorded a $300 million premium deficiency reserve (PDR) to cover several items relating to Health Net costs in 2016. These are balance sheet adjustments to the estimated fair value of the HNT assets/liabilities but are potentially cash expenses. Most importantly, CNC has taken appropriate actions to eliminate these costs in 2017. While the incremental reserves are disappointing, we believe the shares have overreacted to the PDR. Our rating remains Outperform, and we would be buyers of the stock given today's weakness. Our price target remains $90."
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Shares of Centene closed at $75.26 yesterday.