Centene (CNC) Cost Cutting Boosts Health Insurance Stocks

Centene Corporation (CNC) shares gained 3.49% Tuesday after the health insurance giant said it plans to shed 6% of its workforce to improve efficiency and scale operations. The layoffs, which are part of a broad organizational restructuring initiative, will cut 3,000 employees and 1,500 jobs.

“The reductions are primarily in areas where we have significant overlap from acquisitions and where we have opportunity to leverage our size and scale for increased efficiency [to] remain focused on innovation, growth, and agility,” CEO Michael Neidorff told investors during the company’s quarterly earnings call, per FierceHealthcare.

Key Takeaways

  • Centene’s job cuts are part of an organizational restructuring initiative to foster innovation, growth, and agility in an uncertain operating environment.
  • Centene shares rallied from the lower trendline of a trading range, indicating that range-bound conditions are likely to continue.
  • Anthem, Inc. (ANTM) shares find a confluence of support at $288 from a multi-month horizontal trendline and the 200-day simple moving average (SMA).

Like its industry peers, the costs associated with testing and treating COVID-19 continues to weigh heavily on Centene’s earnings, despite reduced payouts from canceled procedures. During the fourth quarter, the company saw its bottom line contract by 37% from a year earlier, although the reported earnings per share (EPS) figure of 46 cents topped Wall Street forecasts by a penny. For the year ahead, the health insurer expects to generate earnings of between $5.00 and $5.30 per share – in line with analysts’ forecast of $5.19. Through Tuesday’s close, Centene stock has a market capitalization of $34.49 billion and is trading 15% lower over the past three months. Since the start of the year, the shares have eked out a small gain of 0.40%.

From a chart perspective, the stock has oscillated within an orderly 15-point trading range, offering high-probability long and short setups for those who favor range-bound strategies. Tuesday’s rally from the range’s lower trendline indicates that this pattern looks set to continue. Active traders who buy here should target a move to the trading range’s opposing side at $72 while managing risk with a stop-loss order placed under the February low at $57.77.

A stop-loss order is an order placed with a broker to buy or sell a security when it reaches a specific price. Stop-loss orders are designed to limit an investor’s loss on a position in a security.

Anthem, Inc. (ANTM)

Anthem shares moved higher in sympathy with Centene as investors bet on other industry names that may be next to implement expense-curbing measures. The Indianapolis-based health insurer posted a 40% slump in fourth quarter net income to $551 million, or $2.19 per share, compared to $934 million, or $3.62 per share, in the year-ago quarter. Looking ahead, the company expects to generate full-year 2021 EPS of more than $24.50, while Wall Street has a consensus EPS estimate of $22.44. In recent years, Anthem has moved around 260 jobs offshore in its benefits administration and commercial claims divisions to curb expenses. Trading at $298.70, with a market value of $74.29 billion and offering a 1.57% dividend yield, the stock has slumped 9.09% over the past three months and nearly 7% year to date as of Feb. 10, 2021.

Buyers stepped in Tuesday at the $288 level – an area on the chart that finds a confluence of support from a multi-month horizontal trendline and the 200-day SMA. Before taking an entry, traders may decide to wait for a cross of the moving average convergence divergence (MACD) indicator above its trigger line to generate a buy signal. Those to take a long position in this area should look for a retest of the November and January swing highs around $340. Cut losses if the price fails to hold above the Feb. 8 low at $286.04.

A swing high refers to a peak reached by a security’s price before a decline. A swing high forms when the high reached is greater than a given number of peaks positioned around it.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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