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Investing.com - Jefferies lowered its price target on Centene (NYSE:CNC) to $47.00 from $61.00 while maintaining a Hold rating, following the healthcare company’s disclosure of a significant Health Insurance Exchange (HIX) risk adjustment under-accrual. According to InvestingPro data, the stock is currently trading near its 52-week low of $52.93, with analyst targets ranging from $61 to $92, suggesting potential upside despite recent challenges.
Centene revealed after market close on Tuesday that initial plan year 2025 HIX risk adjustment data indicates a $1.8 billion under-accrual, representing approximately 680 basis points of medical loss ratio miss on applicable HIX premium and impacting earnings per share by $2.75. Despite these challenges, InvestingPro analysis indicates the company maintains a "GREAT" overall financial health score, with strong profitability metrics and a modest P/E ratio of 8.46.
The issue affects 22 of Centene’s 29 states, accounting for 76% of the company’s HIX membership, with Jefferies suggesting the total impact could reach approximately $2.2 billion when including the remaining states, particularly Georgia which represents about 12% of Centene’s HIX members. With a market capitalization of $28.19 billion and revenue of $153.27 billion in the last twelve months, Centene remains a prominent player in the healthcare sector. Get comprehensive analysis and 10+ additional ProTips with an InvestingPro subscription.
Jefferies highlighted that Centene’s experience confirms concerns about a deteriorating plan year 2025 risk pool, with healthy members leaving while plans had assumed healthy growth, creating pricing misalignment that could affect other insurers, particularly those with large exposure to Federally Facilitated Marketplace states without Medicaid expansion.
The company also disclosed higher-than-expected Medicaid utilization driving second-quarter medical loss ratio above first-quarter levels, though its Medicare Advantage and Prescription Drug Plan businesses are trending better than management expectations for the second quarter.
In other recent news, Centene Corporation has withdrawn its fiscal year 2025 guidance due to significant challenges in its ACA Exchange risk adjustment calculations and rising Medicaid costs. The company reported that preliminary data from Wakely, covering 22 of its 29 states, indicated growth below expectations and higher market morbidity, leading to an estimated $1.8 billion reduction in risk adjustment revenue. This adjustment is expected to impact Centene’s earnings per share by approximately $2.75 in 2025. Despite these challenges, Centene noted better-than-expected performance in its Medicare Advantage and Prescription Drug Plan businesses. Analyst firms have reacted to this news with varied ratings: Morgan Stanley (NYSE:MS) maintained an Overweight rating, while JPMorgan downgraded Centene from Overweight to Neutral, and UBS downgraded it from Buy to Neutral, citing concerns about earnings potential. UBS also revised its earnings per share estimates, projecting a 55% decline for 2025. Centene is in the process of refiling its 2026 ACA Exchange rates and plans to provide more details during its upcoming earnings call.
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