Centene raises 2025 EPS outlook to at least $2 amid Medicaid and marketplace rate actions

Earnings Call Insights: Centene Corporation (CNC) Q3 2025

MANAGEMENT VIEW

* CEO Sarah London reported, "We are driving significant progress against the milestones we provided to investors in July, yielding a better-than-expected adjusted EPS result in the period." She highlighted that Q3 adjusted EPS was $0.50, surpassing previous expectations, with Medicaid delivering anticipated HBR improvement and a positive retroactive revenue adjustment in Florida. SG&A and noncore segment performance were slightly favorable, net investment income was stronger than expected, and a lower effective tax rate benefited the quarter.
* London announced, "With 3 quarters of the year complete, we are increasing our adjusted EPS forecast to at least $2, up from our previous forecast of $1.75 per share." She also stated that Medicaid HBR improvement was aided by a $150 million Florida Children's Medical Services program revenue, and that performance improvement initiatives in Florida and New York yielded tangible proof points.
* The CEO emphasized actions to address high-cost drugs, program integrity, and fraud, waste, and abuse, with multiple states reversing GLP-1 coverage for weight loss and adopting revised formulary decisions.
* For Marketplace, London said they ended the quarter with approximately 5.8 million members, slightly better than expectations, and described a focused effort on positioning for 2026 margin expansion. She stated, "We were data-driven in the buildup of our revised rates, which ultimately averaged in the mid-30s, taking into account increased 2025 baseline morbidity..."
* For Medicare, London explained that both Medicare Advantage and PDP performed in line with expectations, with an HBR of 94.3%. She noted progress in Star ratings, with "60% of members in plans at or above 3.5 stars versus 55% from the prior year."
* CFO Andrew Asher stated, "Today, we reported third quarter 2025 results, including $44.9 billion in premium and service revenue and adjusted diluted earnings per share of $0.50. The GAAP loss per share of $13.50 was the direct result of a $6.7 billion non-cash goodwill impairment charge recorded in the quarter."

OUTLOOK

* Management raised the full-year 2025 adjusted EPS forecast to at least $2 from $1.75 per share, citing early execution on Florida CMS revenue and Medicaid improvement, while maintaining a prudent posture around SG&A and marketplace volatility.
* London outlined that for 2026, Marketplace and Medicare Advantage are positioned for margin improvement due to rate and product repricing, while Medicaid profitability is expected to be consistent with 2025.
* She stated, "We remain focused on driving margin improvement across the enterprise and delivering EPS growth in 2026."

FINANCIAL RESULTS

* Asher confirmed Q3 adjusted diluted EPS of $0.50 and premium and service revenue of $44.9 billion. The quarter included a $6.7 billion non-cash goodwill impairment affecting GAAP loss.
* Medicaid HBR was 93.4%, aided by improved Florida CMS revenue. Medicaid membership was reported at 12.7 million.
* Commercial segment HBR was 89.9%, with marketplace results consistent with a $2.4 billion forecasted earnings impact. An additional $75 million was added to the Q4 provision for marketplace medical expense risk.
* Asher noted cash flow provided by operations was $1.4 billion, with unregulated cash on hand at $357 million and medical claims liability totaling $21.5 billion.

Q&A

* Joshua Raskin, Nephron Research: Asked about trend management and risk pool stability in exchanges. CEO London responded that they built 2026 rates to address baseline morbidity, trend, risk pool shifts from eAPTCs, and program integrity, stating confidence in margin recovery for 2026 while acknowledging continued volatility.
* Albert Rice, UBS: Inquired about member engagement if eAPTCs are extended and Medicaid outlook given state work rule adoption. London said they are preparing for multilayered enrollment efforts and expect market contraction in 2026 in the high teens to mid-30s range, but see limited impact from work requirements in 2026.
* Justin Lake, Wolfe Research: Asked about competitive positioning and PDP margin outlook. London stated focus was on margin over membership in 2026, with low-cost silver positions declining modestly. Asher explained PDP pretax margin is expected to be less than the "3s" level achieved in 2025.
* Andrew Mok, Barclays: Questioned Medicaid profitability trajectory. London confirmed a better-than-expected trajectory for Medicaid, but maintained a prudent 2026 outlook of flat profitability, citing ongoing rate advocacy and cost control initiatives.
* Other analysts raised questions on rate trends, margin stability, and state variability; management provided detailed explanations of assumptions and mitigation strategies.

SENTIMENT ANALYSIS

* Analysts adopted a neutral to slightly cautious tone, focusing on sustainability of improvements, risk pool shifts, and the impact of policy changes, with pointed questions on Medicaid margins and exchange market contraction.
* Management maintained a confident and proactive stance in prepared remarks, with London stating, "We are pleased to have made material and necessary progress on Medicaid profitability and delivered solid results." In Q&A, responses were thorough and addressed uncertainties, but also included prudence and contingency planning language.
* Compared to Q2, management's tone was more confident due to tangible progress, while analysts remained probing and focused on potential volatility and downside risks.

QUARTER-OVER-QUARTER COMPARISON

* Guidance was raised from $1.75 to at least $2 EPS for 2025, compared to Q2 when the outlook was recalibrated downward from earlier in the year.
* Q3 showed improved Medicaid HBR and retroactive revenue adjustments, while Q2 was impacted by risk adjustment challenges and elevated medical cost trend.
* Strategic focus in Q3 centered on rate advocacy, cost containment, and positioning for 2026 margin expansion, compared to Q2's emphasis on identifying and addressing risk pool issues and cost drivers.
* Analyst focus shifted from pressing on immediate recovery to probing the sustainability of improvements and 2026 trajectory.
* Management expressed more confidence in margin improvement and readiness for policy uncertainty, while maintaining a prudent outlook for Medicaid.

RISKS AND CONCERNS

* Management cited continued volatility in marketplace utilization, uncertainty around eAPTCs, and the impact of program integrity and work requirement rules as key risks.
* Medicaid cost trend remains elevated, particularly in behavioral health, home health, and high-cost drugs, though some moderation was noted.
* Analysts voiced concerns about potential market contraction, sustainability of Medicaid margins, and the impact of policy and regulatory changes.
* Mitigation strategies include aggressive rate advocacy, targeted cost controls, and readiness for multiple enrollment scenarios.

FINAL TAKEAWAY

Centene management expressed confidence in their ability to drive improved financial results, raising 2025 adjusted EPS guidance to at least $2 following tangible progress in Medicaid and successful rate advocacy in key states. The company is positioning its Marketplace and Medicare businesses for margin improvement in 2026 and remains focused on operational discipline to address ongoing policy and utilization risks, while emphasizing a prudent approach to guidance amid ongoing market uncertainty.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/cnc/earnings/transcripts]

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