CNC

ACCE thesis

Centene runs Medicaid managed care across 29 states, wrapping government health programs into capitated contracts where the margin lives in medical cost management, not premium pricing power. The company processes roughly $145B in annual revenue through this model, which creates a durable float-like dynamic - cash collected before claims paid - that funds operations at scale. The near-term story hinges on Medicaid redetermination stabilization: post-COVID membership purges hit enrollment hard through 2023-2024, but the remaining book skews toward stickier, higher-acuity members, and state contract re-procurements in 2025 give Centene a chance to reprice risk more accurately. The negative ROE is the obvious red flag and traces directly to goodwill impairments and the drawn-out exit from the Magellan behavioral health acquisition - not core underwriting deterioration, which matters for how you read the balance sheet damage. At 13x forward earnings with the stock down roughly 40% from its 2022 highs, you're buying a Medicaid-dominant franchise at a discount that only makes sense if you believe management can push the medical loss ratio back toward the 88-89% range they've guided - the operational leverage on even 100 basis points of MLR improvement at this revenue base is material.