Top Managed Health Care Stock Pick From BofA Research

BofA Research has designated Centene Corporation (CNC) as its top pick in the managed health care sector, citing robust growth opportunities and enhanced operational efficiency across multiple business units. The investment firm has increased its price target for CNC shares to $82, up from the previous $80 level, reflecting a positive outlook driven by anticipated earnings growth and improved profit margins anticipated to materialize by 2027.

The analysis underscores strong performance in three key areas: Medicaid operations, Medicare operations, and exchange business dynamics. Centene anticipates an earnings per share (EPS) boost in 2027, surpassing both its baseline and reported EPS figures, with consensus estimates pegged at $5.25. The company's Medicaid segment has demonstrated positive trends, with a 30 basis point decline in the medical loss ratio (MLR) on a quarter-over-quarter basis, and remains aligned with a projected 93.5% MLR for the fiscal year.

Despite a forecasted 8-9% reduction in Medicaid membership, Centene remains optimistic about implementing a 5% rate increase in 2026, with approximately 40% of rate adjustments set to take effect on January 1, 2027. The Medicare segment has outperformed expectations, with Part D pretax margins expected to fall within the mid-to-high 3% range, and membership anticipated to increase in 2027. Furthermore, Medicare Advantage operations are projected to achieve breakeven by 2026, marking a year ahead of the original schedule.

Centene's exchange business is projected to align with the upper bounds of its 4.5-5% guidance range. The firm also plans to divest its HNT group commercial business in California over the next 18-24 months. In light of these developments, BofA Research has revised its valuation metrics, now pricing the stock at a forward earnings multiple of 15.6 times, reflecting a slight downward adjustment from the previous 16 times earnings valuation.