Centene (CNC) and Molina Healthcare (MOH) have "compelling" EPS upside potential and could see their EPS jump four to six times higher by 2029, considering that Medicaid margins are likely bottoming in 2026, BofA Securities said in a Thursday note.

BofA analysts said they expect Medicaid margins to improve as state data catches up to trends and changes in the risk pool, which should boost rates and margins in 2027 and onwards. Centene's 2026 EPS guidance of $3.40 is only about 30% of its current EPS power, while Molina's EPS guidance of $5 is only 17% of its current EPS power.

If both companies can return to just the low end of their long-term Medicaid margin targets by 2029, their EPS should be up four to six times from 2026 guidance, the analysts said.

Medicaid margin normalization is a historical pattern of slow but eventual catching up of rates, as states have an incentive to pay target margins to managed care organizations running Medicaid programs, but they take their time in doing so to avoid overpaying, the analysts said. Thus, they are confident that Medicaid margins will rebound in 2027.

BofA kept the Centene's stock rating at buy and raised the price target to $72 from $60, as well as maintained Molina's stock rating at buy and price target at $250.

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