FRAGMENTS — DEEP VALUE REPORT Centene Corporation (CNC) Part 2 — After the 2025 Risk-Adjustment Shock
Hidden value in plain sight
Snapshot
Ticker: CNC (Centene Corporation)
Exchange: NYSE
Share price (approx.): ~$37 (around $37.08 last trade)
Book value per share (Sep 2025): ~$42.6
Tangible book value per share (Sep 2025): $10.73
Price / Book: ~0.9×
Price / Tangible Book: ~3.5×
2024 GAAP EPS: $6.31
2024 adjusted EPS: $7.17
2024 HBR (medical cost ratio): 88.3%
Q1 2025 adjusted EPS: $2.90, premium & service revenue +17% YoY
Q2 2025 adjusted EPS: –$0.16, HBR ~93%
Q3 2025 adjusted EPS: $0.50; GAAP loss per share –$13.50 from a $6.7B goodwill impairment
Q3 2025 operating cash flow: $1.4B
Debt-to-capital (Sep 30, 2025): 45.5%
2025 guidance status: prior 2025 EPS guidance withdrawn July 1, 2025; later updated to ≥$2.00 adjusted EPS for 2025
Updated one-line thesis:
Centene is a policy-dependent managed-care platform that failed a live modelling exam in 2025. The franchise and cash engine held; earnings power and management credibility did not. At ~0.9× book, the market is still treating any EPS above $4 as a “show me” story, not a base case.
Punchline: 2025 didn’t break the company. It broke the old narrative about how safe the models were.
1. Thesis in one page
What this business is supposed to be
A scaled government-program insurer across:
Medicaid managed care
ACA Marketplace = Affordable Care Act
Medicare Advantage (MA)
Medicare Part D (PDP)
Top line is driven by enrollment and capitation rates, not classic price hikes.
Profit lives in the gap between:
capitation and medical trend (HBR)
HBR = Health Benefits Ratio
(Medical costs paid for members) ÷ (Premium & service revenue) =HBR
SG&A leverage, across tens of millions of lives.
Where we stood at the end of 2024
2024 GAAP EPS $6.31, adjusted EPS $7.17, consolidated HBR 88.3%.
Marketplace and PDP both compounding membership double-digits; Medicaid and MA manageable.
Around $3B of stock repurchased in 2024, with leverage still reasonable.
What 2025 changed in three lines
Q1 2025 looked great: adjusted EPS $2.90, 17% premium & service revenue growth, +29% Marketplace and +22% Medicare PDP membership, and guidance raised again.
July 1, 2025: new industry risk-adjustment data hits; Centene withdraws 2025 EPS guidance and flags a ~$$1.8B hit to ACA ( Affordable Care Act) risk-adjustment revenue.
Q2–Q3 2025: HBR jumps to ~93%, adjusted EPS turns negative then barely positive, and a $6.7B goodwill impairment wipes out retained earnings growth and pushes GAAP EPS deep into a loss.
Why there is still a deep-value angle
Even in this stress year, Centene is producing ~$1.4–1.8B of operating cash flow per quarter.
The goodwill write-down cleans up the equity account; tangible book per share is now $10.73, up from $6.94 at year-end 2024.
With the stock around $37 versus book value per share ~$42.6, the market is still saying: “We don’t trust you to safely earn more than $4 a share, and we’re not paying a full multiple until you prove it.”
Punchline: This is not a solvency story. It’s a policy and earnings-power story with a cleaned-up balance sheet and a damaged guidance track record.
2. 2025 — the crash chronology (one clean timeline)
2.1 2024: the “de-risked” base case
2024 adjusted EPS $7.17, GAAP EPS $6.31, HBR 88.3%.
Marketplace membership +12%; Medicare PDP +50% vs Q4 2023.
Management enters 2025 saying the book is “de-risked” under their updated pricing and policy assumptions.
2.2 Q1 2025: everything still looks great
Adjusted EPS $2.90, up 28% YoY.
Premium & service revenue +17% YoY.
Marketplace membership +29%; Medicare PDP +22%.
2025 premium & service revenue guidance raised by $6B.
The tone on the call: the company is still very confident it understands utilization and policy risk.
2.3 July 2025: guidance pulled
New risk-adjustment data across 22 of 29 marketplace states shows meaningfully higher morbidity and lower market growth than assumed.
Centene withdraws its 2025 GAAP and adjusted EPS guidance, and flags an expected $1.8B reduction in 2025 marketplace risk-adjustment revenue (roughly –$2.75 to adjusted EPS).
The stock drops roughly 20–30% in one day, to its lowest level in about eight years.
2.4 Q2 2025: the P&L hole
Adjusted EPS –$0.16, versus expectations for a positive quarter.
HBR jumps to around 93%, up from ~87–88% a year earlier and above expectations.
Drivers:
Lower-than-expected ACA (Affordable Care Act) risk-adjustment inflows.
Higher ACA medical costs from a sicker pool.
Higher Medicaid costs, especially behavioral health, home health, and expensive drugs.
Management resets expectations: 2025 adjusted EPS around $1.75, down from “greater than $7.25” guided earlier in the year.
2.5 Q3 2025: the impairment and the first “floor”
Revenue: ~$49.7B in Q3, up strongly YoY.
Adjusted EPS $0.50 (helped by a very low adjusted tax rate).
GAAP EPS –$13.50, driven by a $6.7B non-cash goodwill impairment related to the One Big Beautiful Bill Act and the stock price decline.
Operating cash flow: $1.4B for the quarter.
Debt-to-capital: 45.5% after the impairment.
Guidance update: the company resets 2025 adjusted EPS to at least $2.00, up from the $1.75 floor discussed on the July call.
Takeaway: the cash engine kept running; the income statement and goodwill line took the hit.
3. Post-shock architecture — how the machine makes money now
3.1 Medicaid — heavy, political, slowly improving
Medicaid still represents roughly half of premium & service revenue.
Major exposure to behavioral health, home health, and high-cost drugs — precisely the cost areas that have run hot since redeterminations restarted.
2025 behavior:
Medicaid HBR runs around 93–94%, including in Q3 2025.
States are reacting with rate increases, but with a political and budgeting lag.
Working assumption: the “new normal” for a while is Medicaid HBR above 92%, not a quick snap back to high-80s.
3.2 ACA Marketplace — the stress line
Centene is a dominant ACA Marketplace player; membership growth into 2025 was strong.
Risk-adjustment data showed higher morbidity and lower growth than earlier assumptions across 22 states.
Result:
Net risk-adjustment inflows ended up far below what the models had baked in.
The ACA book that was meant to be a “quiet margin driver” turned into a hole in the 2025 P&L.
Centene now has to:
Refile 2026 rates with a higher morbidity baseline.
Accept that some membership will be sacrificed to rebuild margin.
3.3 Medicare Advantage & PDP — a drag and a partial offset
Medicare PDP (Part D):
Membership has grown strongly since 2023–24; PDP is one of the bright spots.
Medicare Advantage (MA):
Centene carries a premium deficiency reserve acknowledging that current MA bids are underpriced in the IRA era.
Base case: PDP helps, MA hurts for a while. The MA book is expected to walk from loss → breakeven → low-margin over several bid cycles, not in one year.
3.4 Cash, capital, and solvency
Despite the earnings reset:
Operating cash flow:
Q2 2025: roughly $1.8B
Q3 2025: $1.4B
Equity and tangible equity:
2024 tangible book per share: $6.94.
Sep 2025 tangible book per share: $10.73.
Capital:
Book value per share (mrq): $42.63.
Debt-to-capital: 45.5% post-impairment.
There is no solvency drama here. This is about the earnings band the company can safely print in a tougher policy regime.
3.5 Quick peer context
Compared with UNH / ELV / CI:
Centene has far heavier exposure to Medicaid and ACA.
Less exposure to employer ASO and fee-based businesses that are relatively capital-light.
This is the “policy beta” version of managed care.
🔒PAYWALL — full deep-value cockpit below🔒
What’s below the fold (paid):
Full Bear / Base / Bull scenario tables.
The “prove-it” grid with concrete operational triggers for each path.
A 36-month catalyst & timeline calendar.
Management & capital allocation scorecard post-2025.
The Deep Value Equation, monitoring list, and final bottom-line verdict.
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