As we begin 2026, I want to address a sector that experienced one of the most dramatic fundamental disruptions in recent years: managed healthcare. Historically, the largest managed healthcare companies have been among the most consistent earnings growers in the market. However, in 2025, many of these companies “hit a wall,” suffering unprecedented declines in operating earnings.
The critical question for value investors is straightforward: have these stocks become compelling value opportunities, or are they value traps?
What Went Wrong?
The earnings collapse across managed healthcare was not the result of isolated company failures. Rather, it was driven by a perfect storm of factors:
Surging medical and pharmaceutical costs
COVID-related morbidity miscalculations
Regulatory and policy headwinds
Margin compression and operational challenges
Although revenues remained strong, claims costs far exceeded expectations, causing adjusted earnings per share to fall sharply—most notably at Centene and UnitedHealth Group.
In the video below, I walk through the fundamentals of the top managed healthcare companies using FAST Graphs and explain what caused the 2025 earnings collapse.
The Five Major Managed Healthcare Players
The companies reviewed include Centene, Elevance Health (formerly Anthem), Humana, Molina Healthcare, and UnitedHealth Group. With the exception of Molina, all maintain investment-grade credit ratings, reasonable debt-to-capital levels, and solid balance sheets. Importantly, price declines closely followed the deterioration in fundamentals—exactly what a fundamentals-driven investor would expect.
Despite the earnings stress, these companies are now investing heavily in AI, digital transformation, cost containment, and actuarial recalibration. Analysts broadly expect earnings recovery beginning in 2026–2027, though with varying levels of risk.
Company Takeaways
Centene experienced a severe earnings collapse tied to inaccurate morbidity assumptions. While analysts forecast a strong rebound and potential high returns, this remains the most speculative name due to margin pressure and the absence of a dividend.
Elevance Health stands out as the most stable and attractive opportunity in the group. Earnings declines were far less severe, profitability remains strong, and the company has maintained consistent dividend growth. From a risk-adjusted standpoint, this is the strongest candidate among managed care peers.
Humana faces a slower recovery tied to Medicare Advantage dynamics. However, free cash flow and operating earnings comfortably cover the dividend, and long-term growth prospects remain intact.
Molina Healthcare is the smallest and least profitable of the group, carries a lower credit rating, and does not pay a dividend. While upside may exist, it also carries the highest risk.
UnitedHealth Group, the industry leader, suffered a sharp earnings decline after years of premium valuation. While still a high-quality company, much of the recovery appears priced in, limiting upside relative to peers.
A Conservative Contrast: Cigna
While not a pure managed healthcare company, Cigna deserves attention as a contrast. Its diversified business model allowed it to avoid severe earnings stress, even as the stock price remained undervalued. With an earnings yield near 11% and a well-covered dividend above 2%, Cigna represents a safer, more conservative value investment.
Final Thoughts
Managed healthcare stocks today represent classic value plays with a speculative twist. Earnings damage has occurred, recovery is underway, and opportunity remains—but much depends on execution and margin normalization. As always, investors should rely on fundamentals, perform their own due diligence, and remember:
Value investing always works—when done properly.
Disclosure: Long CNC, ELV, UNH, CI
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
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