Centene Corporation (CNC): A Bull Case Theory

We came across a bullish thesis on Centene Corporation on Waterboy’s Substack. In this article, we will summarize the bulls’ thesis on CNC. Centene Corporation’s share was trading at $29.14 as of July 17^th. CNC’s trailing and forward P/E were 4.30 and 9.13, respectively according to Yahoo Finance.

Centene Corporation, a major player in managed care, has been at the center of the recent rout in health insurance stocks, driven by surging costs, higher utilization, and fraud allegations. Sentiment worsened after President Trump signed the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, which aims to cut Medicaid spending by $1 trillion over the next decade through tighter eligibility and shorter enrollment periods, a material headwind for Centene given its Medicaid-heavy business.

Shares have been punished, including a one-day 40% plunge after a $1.8 billion downward adjustment in risk-adjustment payments forced management to withdraw its 2025 EPS guidance, though the balance sheet can absorb the hit, and premiums will likely reprice. Founded in 1984 and built through aggressive acquisitions, Centene now serves 25.8 million members and generated $158.1 billion in premiums in 2024, primarily from Medicaid.

Though net profit margins hover around 2%, profits are underpinned by $19.7 billion of investments earning 5.2% and a capital-light model that delivered a 14.2% ROE last year. Five-year average free cash flow of $4 billion implies a mere 4.7x EV/FCF multiple, and management retains $2.23 billion under its $10 billion buyback program, capable of retiring nearly 15% of shares at depressed valuations.

While regulatory uncertainty clouds earnings power, most downside appears priced in, leaving a margin of safety rooted in Centene’s asset base, sticky contracts, and cash generation. EPS growth will likely slow, but the stock’s collapse offers contrarians a chance to buy a resilient franchise at crisis-level multiples with substantial upside if political headwinds ease.

Previously, we covered a bullish thesis on Molina Healthcare, Inc. (MOH) by Long-Term Pick in February 2025, which highlighted Marketplace growth and upside from new Medicaid and Medicare contracts despite earnings pressure. The company’s stock has depreciated about 23.37% since our coverage, as higher medical costs hit margins. The thesis still stands. Waterboy shares a similar view on Centene Corporation but emphasizes its margin of safety from depressed valuation and a resilient balance sheet.

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Disclosure: None.