Centene Corporation (CNC), a giant of managed care expected to cross $175 billion in revenues this year, unexpectedly pulled its earnings guidance for 2025 on July 2. This change came after an unexpected shift in the dynamics of the health Insurance Marketplace, which could impact earnings more significantly than what was initially forecasted.
The decision followed industry risk adjustment data from the independent actuarial firm Wakely, which analyzed 22 out of Centene’s 29 Marketplace states, representing approximately 72% of its Marketplace membership. According to the company, these data showed higher-than-expected overall market morbidity and a slower pace of market growth.
CNC is anticipating a shortfall of about $1.8 billion in net risk adjustment revenues, which would mean a $2.75 impact on adjusted diluted EPS for 2025. Although it does not have data from the other seven states, management anticipates a further decline in risk-adjusted revenues due to similar morbidity trends.
Since the revelation, Wall Street analysts slashed their EPS projection for this year, cutting the Zacks profit consensus in half from $7.29 to $3.55 and discounting more of the unknowns.
The Good, the Bad, and the Ugly
Despite headwinds, CNC shared that the final 2024 risk-adjusted results from the Centers for Medicare and Medicaid Services aligned with their expectations, and its Medicare Advantage and Medicare PDP segments are performing better than its expectations in the second quarter of 2025. However, Medicaid is facing challenges due to rising costs in behavioral health, home care and expensive medications, particularly in states like New York and Florida.
As we look toward 2026, Centene is taking proactive steps to adjust its rates, aiming to account for a higher morbidity baseline. This adjustment is seen as a necessary move to help balance out potential losses. The company plans to make these pricing changes in the states where it conducts most of its marketplace business. The early refiling of 2026 rates by CNC suggests a more defensive pricing approach in the future.
Typical of many Wall Street investment banks, Wells Fargo downgraded CNC shares to Equal-Weight and cut their price target from $72 to $30.
A close look at second-quarter earnings and data analysis is required to move forward. CNC's second-quarter 2025 results are slated to be released on Friday July 25.
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Centene Corporation (CNC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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