Centene Corporation (CNC) proved once again that beating earnings estimates doesn't always mean the stock goes up. Shares of the healthcare insurance provider fell nearly 6% on Friday after the company delivered mixed guidance for 2026 that left investors wanting more.

The Numbers Tell Two Stories

On the surface, Centene's fourth-quarter results looked decent. The company posted an adjusted loss of $1.19 per share, which sounds bad until you realize analysts expected a loss of $1.22. A year ago, the company earned 80 cents per share, so the decline is real—but at least they beat the lowered bar.

Revenue told a more impressive story. Sales jumped from $40.81 billion to $49.73 billion, crushing the consensus estimate of $48.39 billion. Premium and service revenues increased 23% to $44.7 billion, powered by growth in prescription drug plans, the Marketplace business benefiting from overall market expansion, and rate increases plus state-directed payments in Medicaid.

But here's where things get complicated. That revenue surge was partially offset by declining Medicaid membership, which is becoming a persistent headache for the company.

The Medicaid Problem and Rising Costs

Total membership across Centene's portfolio fell to 27.63 million from 28.60 million a year earlier. The culprit? Medicaid enrollment dropped from 13 million members to 12.52 million. Commercial membership did jump from 4.81 million to 5.99 million, providing some offset, but it wasn't enough to reverse the overall trend.

Meanwhile, medical costs are climbing. The health benefits ratio—essentially the percentage of premium revenue spent on medical care—hit 94.3%, up from 89.6% a year ago. That increase stems from higher Marketplace medical costs in 2025 and program changes in prescription drug plans resulting from the Inflation Reduction Act.

Interestingly, the Medicaid HBR actually improved by 40 basis points thanks to rate and revenue increases, though higher medical costs related to behavioral health and home health services ate into some of those gains.

What Management Is Saying

CEO Sarah London put a positive spin on what she acknowledged was "a challenging year." She highlighted the "extensive and decisive actions taken in the back half of 2025" aimed at restoring Marketplace profitability and stabilizing the Medicaid business.

Looking ahead, London expressed confidence: "As we look to 2026, we are positioned to deliver meaningful margin improvement and renewed adjusted diluted EPS growth. We expect full year 2026 adjusted diluted EPS to be greater than $3.00, marking important progress toward restoring the enterprise's embedded earnings power all while continuing to work to provide access to affordable, high-quality care for our members."

The Guidance Gap

Here's where the market got spooked. Centene expects 2026 adjusted earnings above $3 per share, which actually beats the analyst consensus of $2.94. That's good news.

But revenue guidance of $186.5 billion to $190.5 billion came in significantly below Wall Street's expectation of $193.43 billion. The company expects premium revenues between $170 billion and $174 billion, with the health benefits ratio ranging from 90.9% to 91.7%.

When you're guiding several billion dollars below expectations, even a modest earnings beat doesn't cut it. Investors sold first and asked questions later, pushing shares down 5.87% to $37.57.