Centene's Aggressive Re-Pricing Meets Deep Skepticism on Structural Risks

What happened

Centene is implementing mid-30% premium hikes for 2026 ACA Marketplace plans alongside fraud and utilization controls to stabilize margins after a turbulent 2025. However, the DeepValue report reveals that 2025 included a $6.7 billion goodwill impairment and elevated health benefit ratios (HBRs) near 93%, underscoring systemic cost and policy pressures. While the news article touts these actions as delivering an improved margin of safety, membership attrition from price increases risks adverse selection and may not fully offset Medicaid cuts under BBBA legislation. The report maintains a 'WAIT' rating, arguing that at $47, the stock already discounts a damaged franchise and offers limited upside without proof of HBR normalization to low-90s by mid-2026. Investors should view upcoming 2026 guidance and S&P's CreditWatch resolution as critical tests of whether aggressive pricing can overcome structural headwinds.

Implication

Centene's premium hikes may temporarily improve ACA margins, but membership loss and potential adverse selection could undermine profitability gains. Structural challenges like Medicaid funding reductions and persistently high morbidity across segments threaten long-term earnings recovery. The company's strong liquidity and capital buffers provide near-term downside protection, but a credit downgrade to high-yield would raise funding costs and constrain strategic flexibility. Current valuation at $47 prices in some optimism, yet the DeepValue report identifies $38 as a more compelling entry to account for unresolved risks. Therefore, waiting for concrete evidence of sustained HBR improvement in 2026 ACA and Medicaid results is essential before considering new investments.

Thesis delta

The news article's bullish take on re-pricing does not alter the core thesis from the DeepValue report, which emphasizes that visibility on ACA and Medicaid margin recovery remains poor. The thesis still requires proof that HBRs can sustainably trend toward 90% by mid-2026 or a cheaper stock price to offer asymmetric upside. Thus, the 'WAIT' rating persists, with no material shift until these conditions are met.