On Wednesday, Centene Corporation (NYSE: NYSE:CNC) experienced a change in stock rating as a leading financial firm adjusted its outlook on the healthcare company. Jefferies shifted Centene's status from Buy to Hold and revised the price target to $69.00, a decrease from the previous target of $83.00.
The modification by Jefferies comes in the wake of recent Medicaid updates that suggest a 15% reduction to Centene's 2024 earnings per share (EPS), which would be partially offset by a 13% gain from Health Insurance Marketplace (HIX) risk adjustment and positive net investment income (NII).
However, the firm anticipates these benefits will not recur, leading to a projected 7% decline in FY25 EPS to $7.07. This estimate places Jefferies 6% below the consensus and indicates growth below the long-range plan (LRP) of 12%-15%.
Jefferies' analysis infers that management's reiterated guidance for 2024 implies an optimistic Medicaid medical loss ratio (MLR) reduction to around 91% in the second half of the year from 92.1% in the second quarter. The firm's own projections for 2025 Medicaid MLR are 50 basis points above consensus, reflecting more cautious expectations.
The firm also expressed concerns over several factors affecting Centene's future performance. These include challenges in regaining profitability in the Medicare Advantage (MA) book, limited growth potential for HIX due to the expected expiration of enhanced Advance Premium Tax Credits (eAPTCs) at the end of fiscal year 2025, and the likelihood that NII has reached its peak with interest rates. These elements combined have led to the decision to downgrade Centene's stock rating and lower the price target.
In other recent news, Centene Corporation has been the subject of several notable developments. The healthcare company exceeded market expectations in the first quarter, reporting an adjusted earnings per share (EPS) of $2.26, leading Centene to increase its full-year 2024 adjusted EPS forecast to above $6.80, citing operational enhancements and strategic growth in its Medicaid and Marketplace segments.
Jefferies, an investment firm, adjusted Centene's price target to $90 from the previous $94, maintaining a Buy rating for the stock. This revision was in response to Centene's slight increase in its 2024 EPS guidance by approximately 1.5%, despite a roughly 0.40% miss in the Medicaid Medical Loss Ratio.
Furthermore, Jefferies reduced the price target for Centene's shares to $83.00, down from the previous target of $90.00, while continuing to recommend a Buy rating for the stock.
This revised price target comes with an analysis of Centene's potential EPS growth, projected at approximately 11% from 2024 to 2027. The firm also noted potential challenges for Centene, particularly if the company's 2024 performance continues to be affected by increased Selling, General, and Administrative expenses.
However, Jefferies also identified opportunities for fundamental improvement within the company, especially in Medicare Advantage cleanup and conservative bidding strategies for a significantly larger Prescription Drug Plan Premium base in 2025.
InvestingPro Insights
In light of the recent rating change for Centene Corporation (NYSE: CNC) by Jefferies, it's worth noting that InvestingPro data and tips provide additional context for investors considering CNC's stock. According to InvestingPro, management has been actively engaged in share buybacks, which can be a positive signal about the company's confidence in its own value. Additionally, Centene is trading at a low P/E ratio relative to near-term earnings growth, suggesting that the stock may be undervalued when considering its earnings potential. With a current market capitalization of $34.63 billion and a P/E ratio standing at 12.76, Centene's financial metrics present an interesting picture.
InvestingPro also highlights that Centene is a prominent player in the Healthcare Providers & Services industry with a strong free cash flow yield, which could be an attractive point for investors looking for companies with solid cash generation capabilities. Moreover, the company's stock has been noted for its low price volatility, providing a degree of stability in a portfolio.
For those seeking a deeper dive into Centene's financial health and future prospects, InvestingPro offers additional insights. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, gaining access to more InvestingPro Tips that could further inform investment decisions. In total, there are 11 additional tips listed on InvestingPro for Centene Corporation, which investors may find beneficial.
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