Bank of America Downgrades Centene Corporation (CNC) Stock to Underperform

Centene Corporation (NYSE:CNC) is one of the Best Beaten Down Stocks to Buy Now. Bank of America downgraded the company’s stock to “Underperform” from “Neutral,” reducing the price objective to $30 from $52 per share. The firm cited worries associated with Donald Trump’s recently enacted One Big Beautiful Bill Act. As per the analyst, the passage of the bill has exposed Centene Corporation (NYSE:CNC) to the slowing end markets in Medicaid and Affordable Care Act (ACA) exchanges.

Furthermore, the firm also noted the higher likelihood of enhanced exchange subsidies expiring at the end of 2025. The analyst anticipates that 2026 might have more downside than upside risk from pricing to risk on exchanges, considering the material shifts in the risk pool. However, for Q1 2025, Centene Corporation (NYSE:CNC) stated that premium and service revenues rose by 17% to $42.5 billion from $36.3 billion in the comparable period of 2024. This rise was mainly aided by premium and membership growth in the PDP business, together with robust product positioning and market growth in the broader Marketplace business.

Centene Corporation (NYSE:CNC) operates as a healthcare enterprise, which is engaged in providing programs and services to under-insured and uninsured families, and commercial organizations.

River Road Asset Management, an investment management company, released Q4 2024 investor letter. Here is what the fund said:

“The holding with the lowest contribution to active return was Centene Corporation (NYSE:CNC) , a managed care organization (MCO) specializing in government-sponsored plans. Historically, health insurance has been a steady business that generates consistent free cash flow (CNC has produced positive FCF since 1998), and we believe CNC stands out as the prime MCO beneficiary of any future economic weakness. The company is the leading provider of Medicaid managed care plans with 17% market share, and it also owns the leading individual exchange franchise. When the economy stumbles, CNC’s revenues should increase as more individuals qualify for CNC’s plans. We are particularly encouraged by the new management’s focus on shareholder value–since the founder stepped down in Q4 2021, the company has divested seven businesses for more than $3.5B and deployed the proceeds into share repurchases.

Despite these strong long-term fundamentals, Centene’s stock declined. This was primarily due to ongoing challenges in its Medicaid business, where the medical loss ratio continued to deteriorate due to a mismatch between reimbursement rates and patient acuity following redeterminations, with Medicaid membership declining -14% even as exchange enrollment grew 22%. While management remains confident this pressure is temporary and all states have acknowledged the need to adjust rates to match patient acuity, investors remained concerned about the timing of this recovery. The stock was further pressured by broader health care sector headwinds, including potential policy risks from a Republican sweep and changes to Medicare Part D prescription drug plans. Even though the company maintained its fiscal year (FY) 2024 adjusted earnings per share (EPS) guidance of over $6.80 and executed significant share repurchases of $1.6B in Q3 and October (~4.7% of shares outstanding), the stock traded at just 9.4x forward earnings, well below its five-year average of 12x, reflecting near-term investor skepticism. We maintained the position.”

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Disclosure: None. This article is originally published at Insider Monkey.