What’s Happening With Centene Stock?

Centene Corporation (NYSE:CNC) had a rough Tuesday evening, with shares plummeting 25% in after-hours trading on July 1st. The healthcare giant’s dramatic stock drop wasn’t just another case of market volatility – it was the direct result of the company pulling its 2025 guidance entirely, a move that sent shockwaves through investors.

The root of Centene’s troubles lies in some disappointing data from the health insurance marketplaces. After analyzing information from 22 out of 29 marketplace states, the company discovered that enrollment numbers were lower than anticipated, and worse yet, the people who did enroll were generally less healthy than expected.

This might sound like a minor issue, but it has major financial implications. When insurers end up with sicker patient populations, they face higher medical costs. To help balance this risk, there’s a federal program designed to even out the playing field across different insurance companies. However, because Centene’s marketplace population turned out to be different than projected, the company now expects to receive less money from this federal risk-adjustment program.

The financial hit? A staggering $1.8 billion shortfall that will knock $2.75 per share off earnings. That’s a significant blow when you consider that Centene had previously guided for adjusted earnings of over $7.25 per share for 2025 during their first quarter announcement.

And here’s the kicker – this analysis only covers 22 states. The company still has data from seven more marketplace states to review, which means additional earnings cuts could be on the horizon.

It’s not just Centene’s problem. Notably, the entire health insurance sector has been struggling with similar challenges. Medical costs have been climbing steadily since the pandemic, with an increase in number of procedures and higher drug costs being a particular pain point. CVS dealt with comparable issues last year, and UnitedHealth actually withdrew its guidance earlier this year. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception. Also, see – SOFI Stock To $30?

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What This Means for CNC Stock

So where does this leave Centene’s stock price? Trading around $43 in after-hours markets, CNC now sits at under 6 times its trailing adjusted earnings of $7.74 per share. That’s a dramatic drop from the stock’s three-year average P/E ratio of just over 11 times earnings.

But here’s where things get tricky. Once we factor in that $2.75 earnings hit to the previously guided $7.25, we’re looking at 2025 earnings per share of roughly $4.50 – and that number could drop even further as more state data becomes available.

At current levels of $43 per share, even using the reduced $4.50 earnings estimate gives us a valuation multiple of nearly 10 times, which actually sits much closer to the stock’s historical average. This suggests that while the 25% drop looks dramatic, it might actually be a reasonable market response to the changed fundamentals.

The 25% plunge in Centene’s stock appears justified given the significant earnings revision and ongoing uncertainty. With more state data still pending and the potential for additional earnings downgrades, further stock weakness wouldn’t be surprising.

Sure, we could be wrong in our assessment and some investors might be tempted to jump in at these seemingly discounted levels – and they could be right if they’re betting on a quick turnaround. However, with earnings estimates still in flux and industry-wide headwinds showing no signs of letting up, waiting for more clarity on Centene’s actual 2025 earnings potential seems like the prudent approach. Now, we apply a risk assessment framework while constructing the Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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