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ST. LOUIS - Health insurer Centene Corporation (NYSE:CNC), a prominent player in the Healthcare Providers & Services industry with $153 billion in annual revenue, announced Tuesday it is withdrawing its 2025 earnings guidance due to significant marketplace risk adjustment challenges and increased Medicaid costs. According to InvestingPro data, the company currently trades at an attractive P/E ratio of 8.46, suggesting potential undervaluation despite recent challenges.
The company cited preliminary data from independent actuarial firm Wakely covering 22 of its 29 Health Insurance Marketplace states, representing about 72% of Centene’s marketplace membership. Analysis of this data revealed lower-than-expected market growth and significantly higher market morbidity than Centene had assumed in its previous guidance. InvestingPro analysis shows that six analysts have recently revised their earnings estimates downward for the upcoming period, aligning with these challenges.
This discrepancy is expected to reduce Centene’s full-year net risk adjustment revenue transfer by approximately $1.8 billion, translating to an adjusted diluted earnings per share impact of about $2.75. The company has not yet provided estimates for its remaining seven marketplace states but anticipates additional reductions.
Centene also reported a "step-up" in Medicaid medical cost trends, particularly in behavioral health, home health, and high-cost drugs. These increases were more pronounced in specific states like New York and Florida. As a result, the company expects its second-quarter 2025 Medicaid Health Benefits Ratio to exceed first-quarter figures.
On a positive note, Centene indicated its Medicare Advantage and Medicare Prescription Drug Plan businesses are performing better than expected in the second quarter of 2025. The company also reported continued strong expense management relative to revenue growth.
In response to the marketplace challenges, Centene has begun refiling its 2026 marketplace rates to reflect higher projected baseline morbidity. The company expects to implement corrective pricing actions for 2026 in states representing a majority of its marketplace membership.
Centene plans to report its second-quarter 2025 results on July 25, according to the press release statement. Despite current challenges, InvestingPro data indicates the company maintains a strong financial health score of 3.18 (rated as GREAT), with moderate debt levels and solid operational metrics. For deeper insights into Centene’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Centene Corporation has been the focus of several analyst reports and ratings adjustments. Cantor Fitzgerald has maintained an Overweight rating on Centene with a price target of $90, citing minimal impact from Medicaid work requirements on the company’s earnings. This comes as the Congressional Budget Office estimates that new work requirements could lead to significant disenrollment in Medicaid, but Cantor Fitzgerald believes the overall effect on Centene will be limited. Morgan Stanley also initiated coverage on Centene with an Overweight rating and a $70 price target, highlighting the company’s strong position in Medicaid and potential for growth in higher-margin segments.
Conversely, Barclays downgraded Centene from Overweight to Equalweight, reducing the price target to $65 due to concerns in the Part D and Affordable Care Act segments. Barclays noted unexpected behavior changes among new high-income members in Part D and potential disruptions in the ACA Marketplace, leading to adjusted earnings per share estimates for 2025 and 2026. Despite these concerns, Cantor Fitzgerald reiterated its positive outlook, emphasizing the potential benefits of legislative changes on Centene’s performance.
The various analyst perspectives underscore the complexities surrounding Centene’s operations and the potential impact of policy changes on its financial outlook. Investors are paying close attention to these developments as they assess the future performance of Centene Corporation in a dynamic healthcare landscape.
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