Centene Loses 57% YTD, Incurs Loss in Q2: How to Play the Stock

Core Insights - Centene Corporation (CNC) has experienced a significant decline in share price, losing 56.8% year to date, underperforming compared to its industry, sector, and the Zacks S&P 500 composite [2][3] - The company reported its first quarterly loss in over a decade in Q2 2025, driven by elevated healthcare utilization and medical cost pressures, with a health benefits ratio (HBR) reaching 93% [3][11] - Centene's operating costs surged by 27.4% year over year in Q2 2025, totaling $49.2 billion, primarily due to rising medical, tax, and administrative expenses [11][13] Company Performance - Centene's stock is currently undervalued, trading at a price-to-earnings multiple of 10.14, lower than the industry average of 11.46 [10] - The company has cut its 2025 earnings per share guidance to $1.75 from over $7.00, reflecting the impact of increased healthcare utilization trends [11][14] - Despite growth in Marketplace membership, revenues were negatively affected by a shortfall in anticipated 2025 risk adjustment transfer payments and high medical utilization rates [15] Market Position - Centene holds a significant market share in government-sponsored healthcare, with operations in Medicaid, Medicare Advantage, ACA Marketplace, and more [18] - The company has expanded its footprint through acquisitions over the past decade, which supports long-term revenue growth [18] - The One Big Beautiful Bill Act (OBBB) is expected to introduce approximately $1 trillion in federal Medicaid cuts over the next decade, impacting Centene's operations [22] Financial Metrics - Centene's return on equity (ROE) for the trailing 12 months was 9.7%, underperforming the industry average of 21.1% [23] - The return on invested capital (ROIC) was 6.7%, also lower than the industry average of 9% [24] - Long-term debt stood at $17.6 billion as of June 30, 2025, exceeding cash and cash equivalents of $14.5 billion [17] Analyst Sentiment - The Zacks Consensus Estimate for 2025 earnings indicates a 70% year-over-year decrease, while the estimate for 2026 suggests a 51% increase [25] - Recent consensus estimates for 2025 and 2026 earnings have decreased by 48.3% and 36.2%, respectively, in the past week [25]