On Monday, Wells Fargo (NYSE:WFC) updated its outlook on Centene Corporation (NYSE:CNC) shares, a leading healthcare company, by raising its price target from $81.00 to $93.00. The firm maintained its Overweight rating on the stock, indicating a favorable view of its investment potential.
The adjustment in the price target reflects Wells Fargo's analysis of two potential scenarios for Centene's future earnings. In the first scenario, which assumes that enhanced exchange subsidies continue, the firm applies a 13x target multiple to Centene's projected 2026 earnings per share (EPS).
After accounting for a partial credit for the expected moderation in Medicare Advantage (MA) losses and discounting the value back at a rate of 10% to a June 30, 2025, target, the price target would stand at $107.00.
In the second scenario, if the enhanced exchange subsidies were to expire, Wells Fargo estimates an approximate $0.70 EPS headwind for Centene.
This would be partially mitigated by $2.00 per share of statutory capital. By applying a 10x target multiple to this adjusted EPS and discounting it back, the price target would be around $78.00.
Wells Fargo arrived at the new $93.00 price target by giving equal weight to both scenarios. In their detailed commentary, the firm stated, "Price Target (NYSE:TGT) to $93.
In our base case (enhanced exchange subsidies remain) we apply a 13x target multiple to 2026 EPS while also giving CNC partial credit for the eventual moderation MA losses. Discounting back 10% to arrive at a 6/30/25 target leaves this PT at $107.
If enhanced exchange subsidies expire, we est a ~$0.70 EPS headwind, partially offset by $2 / share of stat capital. Applying 10x target multiple and discounting back = $78 PT. We equally weight these scenarios to arrive at $93 PT."
The revised price target by Wells Fargo suggests that the firm sees potential growth for Centene shares, factoring in the current policy environment and the company's financial outlook.
The Overweight rating coupled with the new price target indicates Wells Fargo's confidence in Centene's performance and its strategic positioning within the healthcare sector.
In other recent news, Centene Corporation reported a strong second quarter, with an adjusted diluted EPS of $2.42, marking a 15% increase from the previous year.
This robust performance was driven largely by successful marketplace execution, despite facing pressures in Medicaid due to redeterminations. The company is optimistic about future growth, raising its full-year premium and service revenue expectations to $141 billion to $143 billion.
Centene anticipates a return to pre-pandemic Medicaid levels and is focusing on state partnerships to improve rates and acuity matching. Despite challenges in the Medicare Advantage ARS revenue, operational progress is being made in the Medicare platform. The company also expects to achieve an adjusted diluted EPS of over $6.80 for 2024.
These recent developments highlight Centene's commitment to its growth strategy, with a focus on improving Medicaid operations and marketplace innovation.
The company is also targeting revenue projections for 2025 at $14-16 billion, with a focus on duals and Heidi and Fidei opportunities. Centene's leadership remains confident in the strength of its core business lines and the potential for continued expansion and profitability.
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