MW Centene's stock roars back as investors cheer the devil they know about guidance
By Tomi Kilgore
CEO Sarah London provided details on a full-year outlook, after withdrawing it in early July, and indicated that the worst will pass soon
In a clear example of the devil you know, shares of Centene Corp. pulled off a stunning comeback Friday, after the health insurer once again provided full-year financial guidance, even though it was well below what Wall Street was projecting.
It was the withdrawal of the 2025 outlook that had sent the stock plunging a daily record 40.4% on July 2, because previous estimates of rising healthcare costs were way off.
So even though the company also reported its first quarterly adjusted loss in more than a decade, the stock $(CNC.UK)$ erased a premarket plunge of as much as 16.5% toward an 11-year low, to climb 5.7% in morning trading.
The rising healthcare costs are still a problem, and the company also saw Medicaid and Medicare memberships drop. But on the bright side, revenue rose above expectations, with help from increases in prescription drug plan membership and Medicaid rates, and investors were provided a timeline when results were expected to improve.
The stock still has a long way to go to win back investors. Even with Friday's bounce, it's still down 47.9% in July, which puts it on track for the worst monthly performance since going public in December 2001. It has tumbled 53.3% in 2025, to make it the S&P 500 index's SPX worst performer this year.
On the post-earnings call with analysts, Chief Executive Sarah London said the current forecast for 2025 adjusted earnings per share, which excludes nonrecurring items, was $1.75. That was down from the guidance provided in April, prior to the withdrawal, of $7.25, and well below the average analyst EPS estimate of $2.88.
She also provided details on why the outlook changed so much - by $4.55 billion to be exact - including a $2.4 billion increase in the estimate for treatment within Marketplace. There is also a $2.1 billion change in benefit payouts relative to premiums received in the Medicaid business.
And London indicated that the worst will pass, if it hasn't already. She said margins are expected to improve in 2026 as the Marketplace business, which includes Affordable Care Act coverage, is repriced.
"We are confident we can meaningfully move the Medicaid HBR in the right direction over the next 12 to 18 months," London said, according to a FactSet transcript. "And finally, armed with strong rates and operating discipline, our Medicare Advantage business will continue to make solid progress in 2026 on its path to breakeven in 2027."
Medicaid HBR refers to the health benefit ratio, which compares insurance premiums received to benefit payouts - lower is better. For the second quarter, the HBR rose to 93.0%, which was the highest reading in more than five years, from 87.6% a year ago to top the FactSet consensus of 91.3%.
London reassured investors that they will be provided updates as a further data becomes available, such as results seen in July and August, the Oct. 1 update on Medicaid rates.
"We look forward to providing updates on our outlook as we gain additional visibility into these key inputs," London said, according to a FactSet transcript.
For the quarter to June 30, Centene swung to a net loss of $253 million from net income of $1.15 billion in the same period a year ago. Excluding nonrecurring items, the adjusted per-share loss was 16 cents, while the average analyst estimate compiled by FactSet was for a profit of 11 cents.
That was the first net loss reported since the first quarter of 2016, and the first adjusted loss since the second quarter of 2012.
"We are disappointed by our second quarter results, but we have a clear understanding of the trends that have impacted our performance, and are working with urgency and focus to restore our earnings trajectory," CEO London said.
The problem is that the company is paying out a lot more in health benefits than it prepared for. The HBR increase for the quarter was because of lower estimates for risk-adjustment revenue in Marketplace, and higher Medicaid costs, driven by home and behavioral healthcare and high-cost drugs.
The rising costs come as total Medicaid membership declined 2.4% to 12.82 million and Medicare membership dropped 9.8% to 1.03 million.
On the bright side, commercial membership increased 30.8% to 6.31 million, amid a 33.2% rise in Marketplace membership, while Medicare PDP membership rose 18.8% to 7.85 million.
And total revenue grew 22.4% to $48.74 billion, well above the FactSet consensus of $44.14 billion.
-Tomi Kilgore
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July 25, 2025 10:48 ET (14:48 GMT)
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