The Big Beautiful Bill Act cuts $1 trillion from Medicaid from which Centene gets 58% of its revenue. After plunging 40% will the stock drop more?
INDIA - 2025/07/03: In this photo illustration, the Centene Corporation logo is seen displayed on a ... More
On July 1, Centene withdrew its 2025 guidance following an independent actuary’s estimate that the company’s Obamacare revenue assumptions were too high.
Centene’s stock plunged 40% on July 2 and has stayed down.
On July 4, the BBBA became law — and is forecast to slash $1 trillion from Medicaid which accounted for 62% of Centene’s 2024 revenue.
S&P Global Ratings is considering downgrading Centene’s credit rating to junk status.
Saint Louis, Missouri-based Centene — a provider of health care to Medicaid, Medicare, and Health Insurance Marketplace patients — suffered a 40% drop in its stock price on July 2, according to Google Finance.
The drop in Centene’s stock price followed the company’s withdrawal of its 2025 revenue guidance.
The reason? An actuarial report suggested lower than expected growth in Affordable Care Act marketplaces. In light of this report, Centene estimated “the 2025 risk adjustment transfer to be about $1.8 billion lower than its expectations,” reported Fierce Healthcare.
Since then, Centene has been faced with more bad news. The July 4 passage of the BBBA could cut $1 trillion from Medicaid in the next decade — which accounted for 62% of Centene’s 2024 revenue, according to the company’s 2024 Form 10-K. This could further diminish the company’s growth potential.
What’s more, S&P Global Ratings is evaluating whether to downgrade Centene’s credit rating to junk, according to Becker’s — which could raise the company’s cost of capital.
These developments raise questions for investors, such as:
I have contacted Centene to request comment and will update this post if I receive a response.
Centene makes money by providing healthcare services to patients who are receive finding through government programs such as Medicaid, Medicare, and the Affordable Care Act Marketplaces.
Medicaid — which contributed $101.4 billion to Centene’s 2024 revenue — accounted for 62% of the company’s total revenue. Medicare contributed 14% to Centene’s 2024 top line and Commercial — the Marketplace business unit — accounted for 21% of the total and grew 36% to $33.7 billion, according to Centene’s 2024 Form 10-K.
Rapid growth in Centene’s Marketplace business helped the company exceed expectations and raise guidance in the first quarter of 2025.
Here are the highlights:
Centene’s strong product and market growth in the Marketplace business helped propel a 31% growth in the company’s commercial revenues to $10.1 billion in the first quarter of 2025. Centene’s premiums advanced 17.4% to $41.7 billion — exceeding analyst estimates, noted Zacks.
The strong growth in Centene’s Marketplace business in the first quarter likely shocked investors when the health insurer withdrew its 2025 forecast over concerns with Obamacare, reported Reuters.
Specifically, the company reported slower market growth and a rise in higher-risk patients enrolled in its plans under Obamacare. The insurer said an analysis from Wakely predicted “market growth in 22 of its states will fall short of expectations,” Fierce Healthcare reported — reducing Centene’s 2025 EPS forecast by $2.75.
The negative impact on the insurer’s adjusted EPS could be even worse. It is not "out of the realm of possibility" that Centene's earlier 2025 profit forecast of at least $7.25 per share is cut in half, Mizuho analyst Ann Hynes told Reuters.
A bigger threat to Centene’s growth could be the $1 trillion reduction in Medicaid spending over the next decade, according to my July Forbes post. These cuts are likely to cause widespread pain, such as:
Moreover the drop in Medicaid could trim Centene’s revenue growth. Specifically, Medicaid and individual exchange headwinds could reduce the company’s growth rate by one percentage point from 5% to 4% annually over the next five years, according to Morningstar analyst Julie Utterback.
Moody’s has already rated Centene as Ba1, its highest junk grade, according to Bloomberg. S&P Global Ratings is considering downgrading Centene’s credit to junk status reported Becker’s.
S&P cited the loss of visibility into Centene’s future profitability. “With the removal of earnings guidance, we have less immediate clarity and confidence on the company’s capital adequacy trajectory, as well as the overall strength of its business and execution capabilities,” S&P said in a July 1 release.
A potential downgrade could remove Centene from major high-grade bond indexes, boosting borrowing costs. While Centene paid an average interest rate of about 3.8% in March 2025, a downgrade could increase that rate significantly. noted Bloomberg.
Centene stock could fall further. In the wake of the company withdrawing guidance, Jim Cramer sounded very pessimistic. “Given this news from Centene, I think the whole managed care industry is borderline un-investable right now,” Cramer said on CNBC.
He described Centene's expected 2025 hit to EPS as “horrifying.” Cramer added “And, unfortunately, things will get worse for this sector before they get better, so I just can’t justify telling you to own these stocks right now, even after they’ve already come down so dramatically.”
On a more upbeat note, 15 Wall Street analysts view Centene as significantly under-valued. With an average 12 month price target of $63.08, analysts see nearly 91% upside in the shares, noted TipRanks.