Centene profit beats as Fidelis acquisition pays off

By Aakash B and Tamara Mathias

(Reuters) - Health insurer Centene Corp reported a third-quarter profit on Tuesday that edged past analysts' estimates, driven by its acquisition of Medicaid-focused Fidelis Care as well as growth in its Obamacare business.

The company's $3.75 billion acquisition of Fidelis Care last year made Centene the top Medicaid insurer in New York and helped grow its top-earning business that provides insurance for low-income families, in the backdrop of larger rivals consolidating to trim costs.

Centene's strategy of expanding its Obamacare business even as other insurers exited the space has paid off for the company, which recently said it would begin offering health plans in new states including North Carolina and Pennsylvania.

The company, which primarily focuses on government-backed health insurance plans, said membership in its Medicaid unit rose nearly 22 percent to 8.7 million, contributing $10.91 billion to third-quarter revenue.

"While expectations may have been too high, we continue to believe the company is executing nicely in its core Medicaid markets," Cantor Fitzgerald analyst Steven Halper said in a note.

Centene's health benefits ratio, or the amount it spends on medical claims compared with its income from premiums, improved to 86.3 percent in the reported quarter, compared to 88 percent a year earlier.

Net income attributable to the company fell 91 percent in the quarter to $19 million, or 9 cents per share, after expenses to the tune of $399 million related to the Fidelis acquisition hurt the bottom line.

Excluding items, the company earned $1.79 per share, edging past the average analysts' estimate of $1.77 per share, according to Refinitiv data.

Total revenue rose 36 percent to $16.18 billion, beating estimates of $16.02 billion.

The health insurer on Tuesday also tightened its full-year adjusted profit forecast and said it now expects between $6.90 and $7.10 per share, compared to its previous target of $6.80 to $7.16 per share.

"While the quarter on the surface, appears to be solid, the company simply fine-tuned its adjusted EPS guidance," Halper said, adding Wall Street estimates were "probably too aggressive".

Centene shares were down 1.9 percent at $138.62 in light premarket trading.

(Reporting by Aakash Jagadeesh Babu and Tamara Mathias in Bengaluru; Editing by Shounak Dasgupta)