Last Update19 Sep 25Fair value Increased 1.12%
Centene's modest price target increase reflects mixed analyst sentiment, with optimism around reaffirmed FY25 EPS guidance and Medicaid margin improvements tempered by concerns over ongoing Medicaid and marketplace pressures, regulatory risks, and reduced long-term earnings visibility, resulting in a slight upward revision of fair value to $33.94.
Analyst Commentary
- Bullish analysts cite reaffirmation of FY25 adjusted EPS guidance and constructive commentary on Medicaid margin improvement, ACA Marketplace rate refiling, and Stars performance as supporting recent price target raises.
- Bearish analysts highlight ongoing uncertainty and pressure in the healthcare exchange and Medicaid markets, leading to cut estimates and downgrades due to Centene’s high earnings sensitivity to these segments.
- Several analysts lowered long-term EPS projections after management withdrew previously higher FY2025 guidance, citing incorrect Marketplace risk-adjustment assumptions and elevated Medicaid cost trends.
- Managed care sector faces challenged dynamics from regulatory changes (e.g., more difficult Star Ratings cut points in 2026), with Centene seen particularly exposed due to its Medicaid book and ACA involvement.
- While some legislative developments (e.g., One Big Beautiful Bill Act) are seen as incrementally positive, high uncertainty around implementation and the expiration of enhanced APTCs contribute to risk pool volatility and cautious sentiment on Centene’s outlook.
What's in the News
- Judges in Texas and Connecticut dismissed lawsuits challenging the constitutionality of the Medicare Drug Price Negotiation Program, further solidifying the program and impacting major players including Centene (The Hill).
- Centene and other national Affordable Care Act (ACA) insurers are seeking double-digit rate increases for marketplace plans in 2026, citing rising healthcare costs and shifting federal policies (The Wall Street Journal).
- Prescription drug denial rates by private insurers, including Centene, increased from 18.3% to 22.9% between 2016 and 2023, partially due to new high-cost drugs and automation in claims processing (The New York Times).
- The Supreme Court maintained ACA-required preventive care coverage, ensuring no-cost access to services such as cancer screenings for Centene's members (Reuters).
- Senate parliamentarian rulings struck significant Medicaid cost-saving provisions from a major policy bill, impacting potential future savings and operations for Medicaid insurers like Centene (Politico).
Valuation Changes
Summary of Valuation Changes for Centene
- The Consensus Analyst Price Target remained effectively unchanged, moving only marginally from $33.56 to $33.94.
- The Future P/E for Centene remained effectively unchanged, moving only marginally from 8.80x to 8.89x.
- The Discount Rate for Centene remained effectively unchanged, moving only marginally from 7.54% to 7.50%.
Key Takeaways
- Medicaid business margin recovery and strong contract wins could enhance revenue growth and market share in government health programs.
- Improved Medicare Advantage outlook, alongside commercial segment growth, supports positive revenue and earnings prospects through operational efficiencies and increased membership.
- Policy reform challenges, high medical expenses, and specialty drug costs pose risks to margins and revenue growth if not effectively managed.
Catalysts
About Centene- Operates as a healthcare enterprise that provides programs and services to under-insured and uninsured families, and commercial organizations in the United States.
- Centene's Medicaid business is expected to see margin recovery as rate adjustments align better with member acuity, which could improve Medicaid-related revenue and net margins.
- Overall strength and competitiveness in winning Medicaid contracts, such as the fully integrated D-SNP in Illinois and Medicaid expansion into rural Nevada, may drive future revenue growth and market share.
- Increased 2025 Medicare Advantage membership expectations, driven by higher retention rates, contribute to an upward revision in annual revenue, supporting earnings growth prospects.
- Plans to reach breakeven in the Medicare Advantage segment by 2027 are fortified by operational efficiencies, such as reductions in SG&A and enhancements in STARS ratings, potentially improving future net margins.
- Strong growth in the Commercial segment, primarily driven by higher-than-anticipated new enrollments and retention in Marketplace business, leads to a $5 billion increase in premium revenue guidance for 2025, which could bolster revenue and earnings.
Centene Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Centene's revenue will grow by 7.0% annually over the next 3 years.
- Analysts assume that profit margins will shrink from 1.3% today to 1.1% in 3 years time.
- Analysts expect earnings to remain at the same level they are now, that being $2.1 billion (with an earnings per share of $4.34). However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.4 billion in earnings, and the most bearish expecting $349 million.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, up from 7.4x today. This future PE is lower than the current PE for the US Healthcare industry at 21.0x.
- Analysts expect the number of shares outstanding to decline by 2.72% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.54%, as per the Simply Wall St company report.
Centene Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Ongoing discussions around health care policy reform and the lack of broad support for major Medicaid reforms indicate potential challenges in securing favorable policy outcomes, which could impact revenue growth and net margins.
- The potential expiration of enhanced premium tax credits and complications related to the reconciliation process may affect the individual Marketplace's stability and future earnings if tax credits are not preserved.
- Influenza and influenza-like illnesses resulted in $130 million of unexpected medical expenses in Q1 2025 for Medicaid, highlighting potential volatility in medical costs that could adversely impact net margins.
- High specialty drug costs, especially in the non-low-income PDP members, present a financial risk driven by pharmaceutical industry behavior, potentially affecting future earnings and net margins if not adequately managed in future bids.
- Uncertainty surrounding Medicaid rate adjustments and ongoing discussions with state partners on rate adequacy could impact the state's ability to provide necessary rate increases and affect revenue growth and margin recovery efforts.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $33.562 for Centene based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $24.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $195.6 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 7.5%.
- Given the current share price of $31.06, the analyst price target of $33.56 is 7.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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