Centene, Molina offer a glimmer of hope for health insurers

Centene (NYSE:CNC) and Molina Healthcare (NYSE:MOH) shattered fears of a brutal earnings season for the entire managed care sector this week, reporting better-than-expected financials for Q3 and lifting their beaten-down peers in the process.

Shares of CVS Health (CVS), UnitedHealth (UNH), and Elevance Health (ELV) took a beating last week after the trio dashed hopes of a favorable outlook amid rising medical expenses.

The S&P 1500 Managed Health Care Sub-Industry Index (SP1500-35102030), of which UNH is a significant component, lost ~7% last week while the benchmark S&P 500 (SP500) remained flat.

In contrast, the subsector bounced back on Friday, outperforming the broader market as Centene (NYSE:CNC) joined Molina (NYSE:MOH) in beating Q3 Street estimates.

While Molina (MOH) reaffirmed its guidance with its Q3 results on Wednesday, its Medicaid rival, Centene (CNC), raised the revenue outlook following a massive $4.1B topline beat.

“We are surprised as the second pure-play Medicaid MCO this week has now outperformed 3Q street expectations after UNH/ELV experienced unprecedented levels of Medicaid pressure last week,” Baird analyst Michael Ha wrote with a neutral rating on CNC.

However, expecting cost concerns in the company’s Medicaid business, as implied by the health benefits ratio, to continue in the next two quarters, Ha lowered his price target on CNC to $66 from $83 per share.

“We remain cautiously optimistic and keep a watchful eye on how Medicaid cost trend progresses into 4Q given the unprecedented nature of Redeterminations and its significance to 2025 EPS,” the analyst wrote.