Updated 3-Centene raises profit forecast due to effective cost control

Analyst comments have been added in paragraphs 5 and 7, and the chart has been updated.

Reuters, October 27 - Centene (CNC.N) raised its annual profit forecast after reporting better-than-expected third-quarter results, as cost-control measures and growth in premium income helped the health insurer offset the impact of declining membership.

In recent years, rising medical demand has increased healthcare costs and squeezed the profit margins of health insurance companies, prompting them to raise prices and strengthen cost controls.

Centene lowered its full-year medical cost ratio projection (the proportion of premiums spent on medical care) to between 90.4% and 91.1%, down from its previous forecast of 90.5% to 91.3%.

However, the reported medical cost ratio for the quarter remained unchanged from last year, at 92.7%. According to London Stock Exchange Group (LSEG) estimates, analysts had previously expected the ratio to be 92.84%.

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The company stated that improved pricing under the "Obamacare" plans established by former President Barack Obama's Affordable Care Act, along with enhanced performance in Medicare Advantage plans for elderly Americans, contributed to better-than-expected medical costs this quarter.

JPMorgan analyst John Stansel said, "Centene beat expectations and raised guidance, indicating the company is continuing to move toward the profitability improvements investors are looking for in 2027 and 2028."

The company now expects adjusted earnings per share for 2026 to exceed $5.20, higher than its previous forecast of more than $4.80 per share. Analysts had estimated earnings per share of $4.88.

Morningstar analyst Julie Utterback said, "Given that Centene's Medicaid business faces increasing headwinds next year—such as new work requirements—investors may be psychologically preparing for uncertainty around Centene's outlook in 2027."

Due to tighter eligibility verification rules, the company has faced a decline in Medicaid membership, which has resulted in removing some beneficiaries from coverage, leaving the insured population relatively less healthy and needing more medical care.

However, Centene stated its Medicaid program is progressing smoothly. Medicaid is a government-funded health insurance program for low-income individuals.

CEO Sarah M. London expressed optimism about the company's performance and said the pace of earnings recovery is faster than previously expected.

On an adjusted basis, Centene’s third-quarter earnings per share were 58 cents, exceeding the average analyst estimate of 10 cents.

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