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Investing.com - Centene Corporation (NYSE:CNC), a $28.19 billion healthcare provider currently trading near its 52-week low, has withdrawn its fiscal year 2025 guidance due to unexpected challenges in its ACA Exchange risk adjustment calculations and elevated Medicaid cost trends, the company announced Monday. According to InvestingPro analysis, the company appears undervalued despite maintaining strong financial health metrics.
The health insurer revealed it received preliminary data from Wakely for 22 of its 27 exchange states, representing approximately 72% of membership, showing overall growth below expectations and market morbidity significantly exceeding assumptions used in previous 2025 guidance. The company quantified the impact at approximately $1.8 billion, or $2.75 of adjusted EPS in 2025, representing about 38% of its prior EPS guidance of over $7.25. This development comes as InvestingPro data shows six analysts have recently revised their earnings estimates downward, though the company maintains a modest P/E ratio of 8.46x.
Centene also reported an incremental increase in Medicaid cost trends in previously highlighted areas including behavioral health, home health, and high-cost drugs. As a result, the company now expects its Medicaid MLR in the second quarter of 2025 to exceed the 93.6% reported in the first quarter, compared to analyst expectations of 92.4-92.6%.
On a more positive note, Centene indicated its Medicare Advantage and Prescription Drug Plan businesses are performing better than anticipated in the second quarter of 2025, providing a partial offset to the challenges. The company also expects improved SG&A expense leverage to help mitigate some pressure.
Morgan Stanley (NYSE:MS) maintained its Overweight rating and $70.00 price target on Centene stock following the announcement, noting the company is in the process of refiling 2026 ACA Exchange rates to reflect the new data and plans to provide additional details during its second quarter earnings call scheduled for July 25, 2025. For deeper insights into Centene’s valuation and future prospects, investors can access comprehensive analysis and 10+ additional ProTips through InvestingPro’s detailed research reports.
In other recent news, Centene Corporation has withdrawn its 2025 earnings guidance due to significant challenges in risk adjustment and rising Medicaid costs. The company anticipates a $1.8 billion reduction in risk adjustment revenue, impacting adjusted earnings per share by approximately $2.75, based on data from 22 of its 29 marketplace states. Analysts have responded to these developments with mixed ratings: TD Cowen maintains a Buy rating with a $73 price target, while JPMorgan and UBS have downgraded the stock, setting new price targets at $48 and $45, respectively. JPMorgan expressed concerns over Centene’s ability to manage pricing adjustments amid regulatory uncertainties in the ACA Exchange. UBS highlighted persistent Medicaid cost trends and revised its earnings estimates, projecting a significant decline in Centene’s earnings per share for 2025 and 2026. Despite these challenges, Centene’s Medicare Advantage and Prescription Drug Plan services have exceeded expectations, showing better performance in the second quarter of 2025. The company is also taking steps to reprice its 2026 marketplace rates to address higher projected morbidity. Cantor Fitzgerald reiterated an Overweight rating, noting that tightened Medicaid work requirements are expected to have a limited impact on Centene’s operations.
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