Elevance Health (NYSE:ELV) delivered impressive second-quarter results, surpassing expectations and leading to a modest increase in the company’s 2023 outlook. As a result, the company’s shares saw a boost in early trading on July 19, moving closer to our fair value estimate of $520. Our projections for the year align with the revised target, and we maintain our fair value estimate. Elevance Health’s narrow moat remains strong, supported by its local scale leadership, enabling the company to offer competitive pricing compared to its peers.
During the second quarter, Elevance achieved significant growth across key financial metrics, with a 13% increase in revenue, a 12% rise in operating profit, and a 13% growth in adjusted earnings per share (EPS), considering recent share repurchases. Despite the challenges posed by rising medical utilization trends and the resumption of Medicaid redetermination activities following the public health emergency, the medical insurance segment performed well. Revenue in this segment increased by 11%, while operating profits grew by 21%. Elevance also experienced a 2% year-over-year growth in medical membership, driven by strong performance in the individual business (18%), as well as Medicare Advantage (6%) and Medicaid (5%). However, there was a slight sequential decline in Medicaid membership (down 1%) due to the redetermination efforts aimed at ensuring coverage for qualified individuals. It is anticipated that there may be a shift in membership mix from Medicaid to higher-margin employer-sponsored or individual plans over time, although redeterminations present a short-term risk to profits, particularly if a coverage gap occurs during this transition.
Overall, Elevance’s solid performance in the quarter alleviated concerns among investors regarding medical utilization trends highlighted by major managed-care organization peers. The company’s management stated that Elevance had already factored in pricing adjustments for such trends in its 2023 outlook and even raised its adjusted EPS forecast for 2023 to at least $32.85, while maintaining margin assumptions, including the medical loss ratio. Our own EPS forecast for 2023 closely aligns with the company’s new target, and we do not foresee significant changes to our assumptions based on this announcement.
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Author Stephanie Bédard-Châteauneuf