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Centene · CNC · NYSE

Centene is the largest US managed care company focused on government-sponsored health plans, collecting $195B in premiums from Medicaid, Medicare Part D, and ACA Marketplace contracts to cover 28 million members across 30 states.

$53.69
Price
$26.4B
Market cap
$195B
Revenue (FY25)
28M
Members
Listed December 2001 at $1.43; compounded to a peak of $95 in early 2022; now $53.69 after a $6.7B goodwill impairment cratered the stock from $63 to $25 in mid-2025.
2 · The margin inflection

Q1 FY2026 proved the earnings recovery is real — $0.50 above expectations.

$3.37
Q1 Adj EPS vs ~$2.90 expected
87.3%
Q1 HBR down 460bp from FY25
>$3.40
FY26 EPS guide raised from >$3
16%
FCF yield 3x any peer

Centene earned more in Q1 alone ($3.37) than all of FY2025 adjusted ($2.08). Medicaid HBR improved for the third consecutive quarter to 93.1%. SG&A fell to 7.6%. Management raised full-year guidance. The question is no longer whether margins recover, but how fast and how far.

3 · What changed

FY2025 was the crisis year — a $6.7B goodwill write-down that masked a functioning business.

  • The impairment. $6.7B goodwill write-down in Q3 2025 reflected overpayment for WellCare in 2020, not operational collapse. Adjusted operating income was positive. Operating cash flow was $5.1B.
  • The Medicaid squeeze. Post-COVID redeterminations stripped 3.2M members. Medical costs surged from behavioral health, home health, and specialty pharmacy. Rates lagged 6-18 months. Composite rate yield closed FY2025 at 5.5% — catching up.
  • The pivot. CEO Sarah London repriced 95% of Marketplace membership in Q3 2025, suspended buybacks, repaid $1.9B of debt, divested Magellan Health, and restructured leadership with experienced hires from CVS/Aetna and Bright Healthcare.
The stock fell from $63 to $25 on the impairment headline. It has since doubled to $54 as the market begins to separate the write-down from the operating business.
4 · Money picture

A $195B business trading at 0.14x revenue with $4.3B in free cash flow.

$195B
Revenue (FY25) +19% YoY
$5.1B
Operating CF vs $154M in FY24
7.4%
SG&A ratio best in class
$17.4B
Total debt 46.5% debt/cap

Revenue never declined in 20 years — not during the financial crisis, not during COVID, not during the Medicaid redetermination wave. Capex is under 0.5% of revenue. The balance sheet is leveraged but manageable: $678M interest expense is covered 7.5x by operating cash flow. The debt load is the main constraint — buybacks are suspended and cash is going to deleveraging.

5 · The political risk

The OBBBA rewrites the rules for Medicaid — Centene's largest segment.

  • Work requirements. Medicaid members must demonstrate work or community engagement to maintain eligibility, starting 2027 in most states. Nebraska begins Q2 2026. This sheds lower-acuity members and raises per-member morbidity.
  • Provider tax changes. Effective 2028, adjustments to provider taxes and state-directed payments reduce federal Medicaid funding. States may cut benefits, eligibility, or provider rates in response.
  • Marketplace contraction. Enhanced APTCs expired end of 2025. Membership is dropping from 5.5M to ~3.0M. The remaining pool is sicker and harder to price profitably.
The bull case requires that Medicaid rates keep pace with rising morbidity. The bear case says they won't.
6 · Bull and Bear

Lean cautious long — the price compensates for risk, but confirmation is needed.

  • For. 16% FCF yield on a business with improving margins, raised guidance, and a CEO who bought stock at $25.50. If normalized EPS reaches $6 at 15x, the stock is worth $90.
  • For. D-SNP integration mandate by 2030 creates a multi-year growth catalyst from 12M dually eligible members — higher-revenue, higher-margin than base Medicaid.
  • Against. OBBBA structurally shrinks the Medicaid TAM and Marketplace membership is contracting 40%+. Normalized EPS ceiling may be $4-5, not $7.
  • Against. $17.4B in debt with interest consuming 33% of adjusted pretax income leaves no room for margin miss. Contract losses in Georgia or Texas would compound the problem.
The market prices permanent damage. The Q1 beat says otherwise. Two more quarters of Medicaid HBR below 93.5% tips the scale decisively to the bull.

Watchlist to re-rate: Medicaid HBR in Q2-Q3 FY2026 (must stay below 93.5%); Marketplace membership retention (floor is 3.0M); Georgia and Texas Medicaid procurement protest outcomes; FY2026 full-year adjusted EPS vs $3.40 guidance.