Wall Street downgrades Centene after guidance pull; shares crater

Investing.com -- Shares of Centene (NYSE:CNC) plunged more than 32% in premarket trading Wednesday after the company pulled its 2025 guidance, citing unexpectedly poor risk adjustment results in the Affordable Care Act (ACA) marketplace and persistent cost pressures in its Medicaid business.

The move triggered swift downgrades from Wall Street, with both UBS and J.P. Morgan cutting their ratings to Neutral and slashing price targets.

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UBS cut its 2025 and 2026 earnings per share (EPS) estimates to $3.25 and $4.50, reflecting declines of 56% and 44% respectively.

“With the unexpected risk adjustment results in Marketplace and persistent Medicaid cost trends, the company’s near-term earnings has been significantly reduced,” the analysts led by AJ Rice said.

The bank lowered its price target from $80 to $45, applying a 10x multiple to 2026 EPS, below both peer and historical averages.

JPMorgan similarly dropped its rating to Neutral and reduced its price target to $48 from $75. The Wall Street bank now expects adjusted EPS of $2.70 in 2025 and $4.65 in 2026.

“Market-wide ACA Exchange morbidity was higher than CNC anticipated,” analysts wrote, leading to an estimated $1.8 billion revenue hit and a $2.75 EPS headwind for 72% of the exchange book.

If the remaining 28% face similar conditions, the full-year EPS impact could reach $3.93, the bank’s analysts estimate.

The guidance withdrawal highlighted deepening challenges in the ACA exchange business. According to UBS, Centene previously expected a 30% membership decline in 2026 due to subsidy expirations.

“With the business now in a markedly different environment, we expect the reduction in enrollment to be more significant,” the analysts said.

Centene also flagged worsening trends in its Medicaid segment. UBS noted that margin recovery continues to be delayed as elevated costs persist and some states lag on rate updates.

JPMorgan added that Medicaid cost pressures were being driven by high-cost drugs and behavioral health, raising the company’s medical loss ratio above prior expectations.

Both firms acknowledged Centene’s efforts to reprice its exchange offerings for 2026, but cautioned that execution risks remain high amid an uncertain regulatory environment.

As JPMorgan analysts put it, “All of this adds to the degree of difficulty around 2026’s outlook as CNC navigates the shifting risk pools in the ACA exchanges.”

The bank said it will seek more details on Centene’s 2026 ACA strategy and regulatory developments when the company reports second-quarter results on July 25.

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