Why Centene Stock Dropped 40% - And Whether It's a Buy Now

For healthcare stock Centene (NYSE: CNC), July 2 was indisputably disastrous. Shares closed down by over 40% that day, resulting in the firm losing over $11 billion in market capitalization. Close competitors were not spared either.

Molina Healthcare (NYSE: MOH) dropped 22%, and Elevance Health (NYSE: ELV) fell over 11%.

So, what caused Centene to see one of the largest single-day sell-offs among major stocks in recent memory? 

Additionally, what caused the shares of its competitors to follow suit? Ultimately, has a golden opportunity presented itself, or are these stocks names to avoid?

CNC: Fewer, Sicker Patients Lead to Financial Re-Rating

The massive drop in Centene shares came as the company withdrew its 2025 full-year guidance. Centene, Molina, and Elevance are all managed healthcare companies. These firms generate a portion of their business by selling healthcare plans through the Affordable Care Act (ACA) exchanges. Plans from ACA exchanges get government subsidies and offer healthcare to millions of Americans who can't afford insurance on their own.

Centene withdrew its guidance after receiving data from a third party that analyzed the state of the ACA exchange market, also referred to as the Health Insurance Marketplace. The analysis found that the market's growth is lower than previously expected, and the “implied aggregate market morbidity” was higher than previously thought.

Essentially, fewer people are joining, and those who are joining have more health problems.

This is one of the worst combinations of issues a company like Centene could face. This means that the company is covering a smaller and sicker group of patients. It reduces their expected revenue while also increasing the expected cost of caring for each patient, pressuring the firm on both the top and bottom lines. Overall, the preliminary expected impact on the firm’s 2025 diluted earnings per share (EPS) is $2.75. That’s equal to 38% of the “greater than $7.25” EPS the company previously expected to generate in 2025.

With this massive hit on the company’s expected financials in mind, it’s much easier to understand why the stock sold off so much. Molina and Elevance also sold off on this news. They, too, could take significant financial hits because they are also in the ACA exchange market. However, for Centene, is the 40% pullback really justified?

Wall Street Now Sees a More Attractive Valuation in Centene

The MarketBeat consensus price target on Centene is nearly $69, implying 107% upside from the stock’s June 3 closing price. However, honing in on those price targets released after the company’s guidance withdrawal provides a much more helpful understanding of analyst views.

Among those MarketBeat-tracked updates, the average price target on Centene is $51.

Although this target doesn’t signal anywhere close to 107% upside, the approximately 53% upside it implies is still very substantial. It is also much higher than the 32% average upside these analysts saw prior to Centene’s 40% drop.

Overall, this suggests that from a valuation perspective, Centene shares are now solidly more attractive than they were before the fall. MarketBeat has not tracked any Molina or Elevance updates since Centene’s guidance withdrawal.

BBB Peels Back Another Layer of the Risky Centene Onion

The upside implied in Wall Street forecasts looks enticing. It is important to consider that analysts made these forecasts before Trump signed the “One Big Beautiful Bill” into law on July 4. It includes $1 trillion in cuts to Medicaid over the next decade, which accounted for approximately 46% of Centene’s revenue last quarter.

Analysts expect the bill to result in 10.3 million and 11.8 million fewer people receiving Medicaid coverage over that period. Centene’s guidance withdrawal showed that fewer ACA exchange enrollments can substantially negatively affect the company. That revenue stream only made up 20% of the firm's total last quarter. Thus, the reduction in expected Medicaid users could have an even greater and longer-lasting impact on the company.

At this point, there is a highly elevated level of risk around Centene shares and similar names like Molina and Elevance. Although sitting on the sidelines isn’t fun, it is likely prudent. It will be important to see how markets and Centene shares react to the bill to understand if these names truly offer an opportunity.

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The article "Why Centene Stock Dropped 40% — And Whether It's a Buy Now" first appeared on MarketBeat.