Centene Corporation revised its 2025 adjusted profit forecast upwards to at least $2.00 per share, an increase of 25 cents, exceeding analysts' average estimate of $1.68. This positive outlook, announced on Wednesday, followed a period of challenges including a surprise loss in the previous quarter and a downward revision of future profit expectations. The announcement led to a nearly 11% increase in Centene's shares. The company is also projecting adjusted earnings per share growth in 2026, with an analyst expectation of $3 per share.
The improvement in outlook is partly attributed to better-than-expected Medicaid medical cost ratios. Centene reported a Medicaid medical cost ratio of 93.4%, compared to 93.1% last year, which analysts viewed favorably. The total medical cost ratio was 92.7%, slightly better than the consensus of 92.8%. CEO Sarah London acknowledged progress in Medicaid margin improvement but emphasized that the company is not yet declaring victory.
Despite the positive turn, Centene grappled with a net loss of $13.50 per share in the third quarter, largely due to a $6.7 billion non-cash goodwill impairment charge. This impairment was in anticipation of reduced Medicaid funding starting in 2027 under President Donald Trump's tax and budget bill, and the potential expiration of expanded Obamacare subsidies at the end of 2025. This analysis was prompted by market conditions and a 45% decline in the company's shares earlier in the year. The company did, however, report an adjusted profit of 50 cents per share for the third quarter, outperforming analysts' average estimate of a loss of 14 cents.
Centene had faced significant pressure from rising medical costs over the past two years, impacting the entire insurance sector. Factors contributing to increased costs included higher utilization of behavioral health services, home care, and expensive drugs. Additionally, the expiration of pandemic-era subsidies and Medicaid protections led to a shift towards sicker members, further squeezing margins. The company's prior second-quarter results showed a medical cost ratio of 93%, exceeding Wall Street's expectation of 89.3%, and an adjusted loss of $0.16 per share, contrasting with an expected profit of $0.86. CFO Drew Asher highlighted challenges such as an unanticipated shift in customer mix and regulatory changes in 2026 and beyond.
To address these issues, Centene is actively repricing its Affordable Care Act (ACA) plans, with CEO Sarah London stating that the company is making progress towards repricing 100% of its marketplace book. The company has already submitted 2026 proposed ACA health plan rates in 17 states and plans to submit more. Centene's leadership also expressed confidence in addressing the Medicaid business, identifying key areas for improvement. The company reaffirmed its 2026 adjusted profit forecast, which is expected to exceed $3 per share, providing some stability after earlier concerns about membership declines in Obamacare plans.
