Centene Named Top Managed Care Pick by BofA on Strong Growth Outlook

BofA Research has identified Centene Corporation (CNC) as its top pick in the managed health care sector, citing improved operational performance and a positive outlook for earnings growth. The firm reiterated its Buy rating on the stock and increased its price objective to $82 from a previous $80.

Analyst's Thesis

BofA's positive stance is rooted in expected margin improvements and earnings growth for Centene heading into 2027. The research firm highlighted progress across the company's key business lines, including Medicaid, Medicare, and its exchange-based offerings.

In its analysis, BofA noted it now values Centene stock at 15.6 times earnings, a slight adjustment from its previous valuation multiple of 16 times. The firm raised its earnings estimates for the company based on the favorable operational trends.

Segment Performance Drives Optimism

BofA's report detailed specific performance metrics that support its upgraded outlook for Centene. The firm pointed to strength in the company's largest business segments as a key driver for future growth.

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• Medicaid: The medical loss ratio (MLR) declined by 30 basis points quarter-over-quarter and is on track to meet the company's full-year target of 93.5%. While Centene anticipates an 8-9% decline in Medicaid membership in the fourth quarter, it is optimistic about rate increases of 5% for 2026, with 40% of its rates set to update on January 1, 2027.
• Medicare: The segment outperformed expectations, with Part D pretax margins in the mid-to-high 3% range. Centene expects Medicare membership to grow in 2027, and its Medicare Advantage business is now projected to reach breakeven in 2026, a year ahead of schedule.
• Exchange Business: This segment is trending toward the higher end of the company's 4.5-5% guidance range.

Strategic Outlook

Looking ahead, Centene expects to grow its earnings per share in 2027 from its baseline figures, which include an adjusted EPS of $4.70 and a reported $5.20. This outlook compares to current consensus estimates of $5.25 for the year.

As part of its strategic adjustments, Centene also announced plans to exit the HNT group commercial business in California over the next 18 to 24 months. This move allows the company to further focus on its core government-sponsored health plans.