TORONTO (Reuters) -Sun Life Financial's ( SLF ) shares fell nearly 8% in early trade on Friday after the Canadian life insurer said it would miss a 2025 profit target for its dental business in the U.S. due to uncertainty in Medicaid funding.

The insurer, which bulked up its dental business through the $2.5 billion acquisition of DentaQuest in 2022, said underlying net income for the dental business this year is expected to be below $100 million.

The unit has struggled in recent quarters. 

The forecast revision was driven by uncertain Medicaid funding resulting in slower negotiations with states on coverage rates and higher Medicaid claims, the company said.

Sun Life works with U.S. states to administer Medicaid and Medicare Advantage dental benefits through the DentaQuest business and is dependent on government funding. 

"We believe that a reversal in the U.S. dental business that caused the company to retract its 2025 profit target for this business has implications beyond the quarter," National Bank analyst Gabriel Dechaine said.

Analysts have said Sun Life's dental business could be vulnerable to provisions in U.S. President Donald Trump's recent tax-cut and spending legislation, known as the One Big Beautiful Bill Act, that targets Medicaid cuts. That could weigh on the future growth of the business as tighter eligibility requirements could shrink Medicaid enrollment over time.

Sun Life still expects over 12% underlying net income growth for Sun Life U.S., with the dental business expected to contribute at least a third of overall earnings in the region. 

Underlying net income fell 4% in the U.S., which accounts for about a fifth of the company's underlying earnings.

Its underlying earnings of C$1.79 in the second quarter were above analysts' average estimate of C$1.78 per share, according to LSEG data.

Peer Manulife reported earnings below analysts' estimates, hurt by weakness in its U.S. business.