Investing.com -- Bank of America upgraded Elevance Health and gave Centene Corporation a double upgrade on Wednesday amid growing confidence that Medicaid margins are nearing a trough and are set to recover over the next several years.

BofA raised Elevance Health to Buy from Neutral with a price objective of $435, while moving Centene to Buy from Underperform, with the price objective jumping from $34 to $60.

Centene shares rose more than 3% in premarket trading.

State Medicaid reimbursement rates have lagged behind actual cost trends since the dramatic shifts in Medicaid enrollment beginning in 2023, squeezing margins across the managed care industry.

BofA now believes those margins are bottoming in 2026 and that a multi-year recovery is essentially “a matter of time and math.”

For Centene, BofA estimates the company is operating near breakeven in Medicaid, roughly 3% below its long-term target of 2-4% margins, which represents "a ~$4 (~124%) drag to 2026 EPS."

Analysts led by Kevin Fischbeck see normalized earnings power of around $12 per share, compared to its 2026 estimate of $3.40, meaning Centene is currently earning only about 30% of what it should at target margins.

Elevance, meanwhile, is guiding to -1.75% Medicaid margins, about 475 basis points below the midpoint of its long-term target, a headwind BofA estimates at roughly $10, or 37%, of 2026 EPS.

Unlike Centene, Elevance’s diversified business mix — which includes its fast-growing Carelon health services unit and Blue Cross Blue Shield plans across 14 states — provides a buffer.

“We still see near term risks to trend, exchanges, and acuity but given ELV’s diversified business mix, it is a lower risk way to invest in the theme of improving Medicaid margins with $10 of EPS upside,” the analysts wrote.

BofA flagged the second quarter as a key test for both companies, with trend data, exchange risk pools, and Medicaid acuity dynamics all still uncertain.

The analysts also warned that potential enrollment reductions tied to the "One Big Beautiful Bill" legislation could spark a new round of losses in 2027 or 2028, though they said such shifts are "unlikely to create a y/y set back."

Separately, Cantor Fitzgerald also upgraded Centene to Overweight and lifted its price target to $60 from $41, saying the path to margin recovery has become clear enough to act.

Analysts said three things changed their view — corroborating data from the March Wakely report, increased confidence that Centene sits in a net receivable position, and a conservative company guide on 2026 Medicare and exchange margins.

Cantor framed the margin pressure across Medicaid, exchanges, and Medicare as a pricing cycle issue rather than a structural one, and said the question is no longer whether margins recover but when.

Its base case — assuming 3.5% margins and 5% top-line growth by 2028 — implies more than 90% stock appreciation from current levels.