Sterne Agee Previews Q3 Earnings For Medicaid Plans

Sterne Agee issued a Medicaid Plan Q3 preview report on Wednesday. Sterne Agee maintained the following ratings, price targets and Q3 EPS estimates:

Centene Corp CNC - Buy, $96 price target, $0.94 EPS

Molina Healthcare, Inc. MOH - Buy, $69 price target, $0.42 EPS

WellCare Health Plans, Inc. WCG - Buy, $72 price target, $0.60 EPS

According to analyst Brian Wright, "2014 earnings progression is highly skewed to 4Q because of the timing of receiving full gross-up for the ACA HIF from state partners."

"3Q estimates for the Medicaid names have been coming down to account for this impact and we remain comfortable with our '14 estimates. Molina Healthcare, Inc. reminded investors at its September Investor Day of the quarterly progression issue and since then 3Q14 EPS estimates have come down by about $0.20 to the current $0.44 with the HIF issue at $0.14," according to Wright.

Wright lowered his Centene Corp "3Q14 EPS estimate by $0.12 to $0.94 as we adjust further the seasonality issue. CNC filed an 8k on October 8 reminding investors that the company still awaits full reimbursement in Texas and California for the gross-up for federal and state income taxes for the HIF. That impact is about $0.16 per quarter, but we had partially factored the seasonality, so our estimates are only coming in $0.12."

The report noted that "upon further review of the enhanced 4Q seasonality this year, we remain comfortable with our outlook for the year of $3.85" for Centene Corp.

As for WellCare Health Plans, Inc., Wright was "not looking for the other shoe as we see the closet as cleared, though we are about $0.06 below consensus. The good thing about a company that basically cuts its '14 outlook in half is that even if 3Q14 is $0.06 light, investors will likely view it as in line."

Centene Corp recently traded at $82.62, up 1.40 percent.

Molina Healthcare, Inc. recently traded at $45.72, up 2 percent.

WellCare Health Plans, Inc. recently traded at $63.11, up 1.7 percent.