Why Centene Stock Just Popped
Key Points
Politico reports the Trump Administration may extend Obamacare subsidies by two years.
Centene depends heavily on ACA policies to grow its business.
- 10 stocks we like better than Centene ›
Health insurer Centene (NYSE: CNC) is helping lead the stock market higher this morning, rising 8% through 11:05 a.m. on positive healthcare news out of Washington, D.C.:
It looks like Obamacare subsidies are here to stay.
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A healthcare compromise in Washington
That's what Politico thinks. The news site says the Trump administration may extend Affordable Care Act (ACA) subsidies, which are due to end next month -- the basis for the recent government shutdown -- for an additional two years. Such a move would prevent a spike in Obamacare premiums and, as a result, incent more consumers to keep their healthcare policies rather than drop them as unaffordable.
Two conditions of the extension would be to create minimum premium amounts, and also limit subsidies to consumers earning under seven times federal poverty wages. But none of that matters to Centene, really.
What matters to Centene, and its investors, is that Centene credited the ACA with helping grow its commercial marketplace business by 12% in 2024, growing its revenue 4%, and raising its guidance for 2025 as well. A lack of subsidies would have put these accomplishments at risk; their extension is therefore excellent news for Centene.
Is Centene stock a buy?
Is it good enough news to make Centene stock a buy? That's less clear.
Centene is still probably going to lose money this year -- analysts say probably more than $10 a share. It's expected to turn profitable again next year, but may still earn as little as $1.83 per share, according to analysts polled by S&P Global Market Intelligence.
With Centene stock costing nearly $40 a share, that works out to about a 22 times forward P/E ratio. Pretty pricey for a stock whose health depends on the government's generosity, if you ask me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
