Health coverage company Centene (NYSE:CNC) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 15.4% year on year to $46.62 billion. The company’s full-year revenue guidance of $180 billion at the midpoint came in 4.2% above analysts’ estimates. Its non-GAAP profit of $2.90 per share was 15.3% above analysts’ consensus estimates.
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Centene (CNC) Q1 CY2025 Highlights:
- Revenue: $46.62 billion vs analyst estimates of $43.03 billion (15.4% year-on-year growth, 8.3% beat)
- Adjusted EPS: $2.90 vs analyst estimates of $2.52 (15.3% beat)
- Adjusted EBITDA: $1.85 billion vs analyst estimates of $1.58 billion (4% margin, 17.2% beat)
- Management reiterated its full-year Adjusted EPS guidance of $7.25 at the midpoint
- Operating Margin: 3.3%, in line with the same quarter last year
- Free Cash Flow was $1.38 billion, up from -$607 million in the same quarter last year
- Customers: 27.94 million, down from 28.6 million in the previous quarter
- Market Capitalization: $31.24 billion
StockStory’s Take
Centene’s first quarter was marked by higher-than-expected revenue and profit, supported by stronger membership growth in both Medicare Advantage and commercial marketplace plans. CEO Sarah London pointed to improvements in Medicaid rates and contract wins in Illinois and Nevada as factors that contributed to the company’s performance. She also highlighted that a more severe flu season increased costs in Medicaid, but these were largely offset by underlying margin improvements.
Looking ahead, management reiterated its full-year adjusted EPS guidance and raised its revenue outlook, citing continued momentum in key markets and constructive state negotiations. CFO Drew Asher noted, “A strong top line creates attractive long-term earnings power,” but emphasized ongoing monitoring of specialty drug costs and the company’s ability to adjust bids for changing market dynamics. The leadership team acknowledged sector volatility and policy uncertainty, but maintained confidence in Centene’s diversified approach and operational discipline.
Key Insights from Management’s Remarks
Centene’s management provided detailed commentary on the drivers behind the quarter’s growth and the evolving policy environment. The following developments were identified as central to recent performance and ongoing outlook:
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Medicaid Rate Increases: Management cited improvement in matching Medicaid rates to higher member acuity, with roughly 40% of Medicaid revenue receiving updated rates that averaged a 4.5% increase. These adjustments were noted as a key factor in underlying margin improvement despite a heavier-than-anticipated flu season.
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Medicare Advantage Membership Gains: The company reported stronger-than-expected Medicare Advantage retention and new enrollments, which contributed to a $1 billion upward revision in annual revenue guidance. Management attributed this to an enhanced value proposition and favorable rate calculations that more accurately reflect current medical cost trends.
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Commercial Marketplace Growth: New enrollment and high renewal rates in the company’s individual marketplace business contributed to higher revenue. Management indicated that while the new member cohort utilized services at a higher rate, this was factored into full-year projections and supported by prudent risk adjustment practices.
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Medicaid Contract Wins: The company secured significant Medicaid contracts in Illinois and Nevada, including the expansion of managed care into rural and frontier areas of Nevada. These wins were highlighted as evidence of Centene’s competitive positioning across diverse population segments.
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Specialty Drug Cost Pressures: Leadership emphasized continued upward pressure from high-cost specialty drugs, especially in Medicare Part D and Medicaid. They explained that initiatives are underway to work with state partners and adjust pricing strategies to manage these costs within future rate cycles.
Drivers of Future Performance
Management’s outlook for the remainder of the year emphasizes margin recovery, policy headwinds, and disciplined execution across its health insurance portfolio.
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Ongoing Policy Uncertainty: The company expects the fate of enhanced premium tax credits and new marketplace regulations to shape future enrollment and pricing decisions. Management is preparing for multiple scenarios as Congress debates potential extensions or changes.
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Medicaid Rate Negotiations: Centene views continued progress in state rate negotiations as critical, with management pointing to actuarially sound rates and data-driven discussions as supporting factors for margin recovery in the Medicaid segment.
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Specialty Drug Utilization: The company anticipates that elevated specialty drug costs—particularly for high-cost therapies in Medicare and Medicaid—will persist. Management is incorporating these trends into 2026 bids and expects additional margin pressure if protective risk corridors are not extended.
Top Analyst Questions
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Josh Raskin (Nephron Research): Asked about the confidence in isolating flu-related costs in Medicaid and whether similar trends were seen in Medicare. Management clarified that the $130 million was strictly flu and ILI-related in Medicaid, with lesser impact in other segments.
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A.J. Rice (UBS): Inquired about the potential earnings impact if enhanced premium tax credits expire and the operational burden of potential Medicaid work requirements. Management confirmed the estimated impact remains about one dollar per share and noted high variability in state implementation of work rules.
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Justin Lake (Wolfe Research): Sought clarification on risk adjustment estimates and the risk pool for new marketplace members. CFO Drew Asher affirmed that risk adjustment estimates for 2024 were consistent and that the company is taking a conservative approach for new 2025 members until more data is available.
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Sarah James (Cantor Fitzgerald): Questioned whether higher medical loss ratios for new marketplace members were due to the ramp-up effect or higher acuity. Management responded that new member utilization was as expected and fully reflected in the company's outlook.
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Andrew Mok (Barclays): Asked for detail on how the Medicare Part D risk corridor functions and the company’s margin expectations. Management explained the risk corridor limits downside exposure this year, but cautioned that future bids assume less protection unless clarified by CMS.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the outcome of Congressional action on premium tax credits and new regulatory proposals, (2) continued progress in Medicaid rate negotiations and their impact on segment margins, and (3) the evolution of specialty drug utilization trends and any related adjustments in pricing or program design. The company’s ability to translate recent contract wins and membership growth into sustainable profit improvement will also be a key signpost.
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