Wolfe Research’s recent analysis of the managed care sector concludes that the industry is currently producing materially lower earnings than the target margins investors have expected. The firm’s modelling indicates a gap between actual and target earnings per share in 2026 that spans roughly 34% to 400% across the major companies it examined.
According to Wolfe Research, Molina Healthcare, Humana, and Centene face the most severe shortfalls, with their projected 2026 earnings per share running about 200% to 400% below target levels. The research attributes those outsized gaps in part to continued pressures in both Medicaid and Medicare Advantage businesses and, for some companies, relatively limited diversification across other lines of business.
Other large insurers are also underperforming versus targets, though to a lesser degree. Wolfe’s figures show CVS Health, Elevance Health, and UnitedHealth Group trailing target earnings by 34%, 63%, and 46% respectively for 2026. Despite these shortfalls, the firm sees potential for earnings recovery across the group over the medium term.
Wolfe traced actual results from 2018 and projected financial paths forward through 2030, benchmarking those trajectories against each company’s target margins. The firm observes that the managed care industry has not previously confronted margin pressure on the scale its models identify for the current period, but it also highlights a more defined route to improvement within Medicare Advantage specifically.
Valuation metrics for the sector currently trade below standard multiples versus the S&P 500 and sit near trough levels when assessed on an earnings-power basis, Wolfe notes. That pricing dynamic, combined with the firm’s forecasted improvement in profit trends from 2026 to 2030, leads Wolfe Research to view the sector as offering a compelling risk-reward profile should earnings accelerate as modelled. Within the group, CVS Health is identified as Wolfe’s top pick based on what the firm sees as the clearest path to margin restoration as Aetna-related businesses recover earnings.
On fundamentals, Wolfe models gradual improvement in both Medicare Advantage and Medicaid margins. For Medicare Advantage, the firm points to a confluence of deeply negative factors - cost trends, rates, and competitive dynamics - that bottomed together in 2023 and 2024; it says rates and competition have begun to improve while cost trends have steadied over the last 12 to 18 months. For Medicaid, the analysis cites worsening fundamentals tied to changes in risk pools after redeterminations and ongoing cost trend pressure into 2025. Wolfe projects margins to recover over several years as reimbursement rates increasingly factor in elevated acuity, but it also highlights regulatory uncertainty given that Medicaid reductions are included in some legislative proposals.
Implications
The analysis signals meaningful near-term earnings stress for managed care firms and suggests the potential for multi-year improvement - contingent on stabilization in costs, competitive dynamics, and regulatory outcomes.