Elevance Health Inc.

 

Elevance, formerly known as Anthem, is one of the large providers of health insurance in the U.S. It has long been a very well-managed company whose growth has been partly due to consolidation.  They are well positioned to benefit from continued growth in health care in addition to improvements in the health care system and internally-developed PBM Carelon (launched as IngenioRx in 2020) which has driven lower costs for consumers and the company (and higher earnings).  At 14X trailing earnings, which have grown meaningfully over the past few years, valuation does not appear to reflect their growth opportunities especially relative to more expensive peers.

 

Ests      3Q24   4Q24   FY24      FY25

Revs    43.1b   43.0     172b      183b

EPS      9.66     6.82     37.26     41.67

                                               

P=496.96, Div=6.52, yield=1.3%, TTM EPS 34.78, P/E=14X, FY24 P/E=13X, net cash and investments 21bn but partially offset by 15bn WC deficit, 6.4bn net cash, $27.5/sh, still a solid balance sheet but reflects the nature of the business (includes about 10bn of private illiquid investments)

 

3Q24   8.37 vs 8.99 -7%, est 9.66

  • Oct 17, 2024, P=496.96, TTM EPS=34.78, P/E=14, FY24 P/E=13X

  • Revs +5.3% to 44.7bn, adj OM 5.3% vs 6%, benefit expense ratio 89.5% vs 86.8%

  • Health Benefits +4.4% to 38.3bn, OM 4.2% vs 5%

  • Carelon +15% to 13.8bn, OM 5.8% vs 5.6%

  • Medical Membership -3.3% to 45.76m, down slightly q/q

  • OCF +2% to 2.68bn

  • Management categorized “unprecedented challenges” in Medicaid, cited “timing mismatch between Medicaid rates and acuity” (cost trends 3-5X historical averages), accelerated in 3Q, not expecting further acceleration in 4Q

  • FY24 Outlook lowered to approximately $33 (slightly down y/y) from >$37.20, implies 4Q -31% to 3.87,Mgmt said “time-bound” many times but  expect to persist into 2025 as it will take time for rates to reflect higher acuity.

  • Expect at least mid-single-digit EPS growth in FY25, with Medicare improvement but, expect mismatch of Medicaid rates vs acuity to narrow as year progresses but margins to be below target 

2Q24   10.12 vs 9.04 +11.9%, est 10.01 down from 10.18

  • Jul 17, 2024, P=553.14, TTM EPS=35.40, P/E=16X, FY25 P/E=13X

  • Revs -0.4% to 43.2bn, Benefit Expense Ratio 86.3% vs 86.4%, OM 6.4% vs 6.1%

  • Health Benefits -2.1% to 27.2bn, OM 5.8% vs 5.6%

  • Carelon +9.9% to 13.3bn, OM 5.3% vs 5.4% (OpInc flat)

  • Medical Membership -4.6% to 45.8m, -0.6% q/q, driven by Medicaid

  • Maintained Outlook but rising medical costs in Medicaid expected to push Benefit Expense ratio into upper half of initial guidance of 87% +/- 50bps (FY23 was 87% vs 87.6%), spooked the stock hard. Mgmt noted calendar day shift associated with leap year will impact 3Q MLR by 70bps

  • Not giving FY25 guidance yet but expect to accelerate rev growth across all businesses

1Q24 10.64 vs 9.46 +12.5%, est 10.53

  • April 18, 2024, P=508.97, TTM EPS=34.32, P/E=15X

  • Revs +0.9% to 42.3bn (est 42.4bn), Benefit expense ratio 85.6% vs 85.8%, OM 7.1% vs 6.8%

  • Health Benefits flat at 37.3bn, OM 6.1% vs 5.8%impacted by Medicaid attrition

  • Carelon +5.2% to 12.1bn, OM 6.7% vs 6.5%

  • Medical Membership -3.9% to 46.2m driven by Medicaid -21.5%

  • Announced strategic partnership to improve access to quality care to improve experiences and outcomes, a focus that’s an often-untold aspect to ELV’s business model.

  • Raised FY24 Outlook to adj EPS >37.20 (previously >37.10)

4Q23   5.62 vs 4.88 +15.2%, est 5.64 down from 5.98, FY23 EPS +16.2% to 33.14

  • Increased dividend +10% to 6.52, yield 1.4%

  • Jan 24, 2024, P=472.16, TTM EPS=33.14, P/E=14X, FY24 P/E=12.5X

  • Revs +6.8% to 42.5bn (est 42.1b), Benefit Exp Ratio 89.2% vs 89.7%, OM 3% vs 3.2%, OpInc +3.3%

  • Health Benefits +4.2% to 36.5bn, OM 2.1% vs 2.2%

  • Carelon +13.8% to 12.4m, OM 4.8% vs 4.7%, OpInc +15%

  • Medical membership -364k q/q Medicaid attrition, -1% y/y, Commercial +1.6% y/y

  • FY23 OCF 8.1bn vs 8.4bn, 4Q Repurchased 929m in stock, FY23 repurchased 2.7bn

  • FY24 Outlook: Revs flt to +LSD, adj EPS +11.9% to >37.10  (est 37.50), not including M&A, earnings growth in both Health benefits and Carelon

  • “pockets of Medicare Advantage” remain very competitive, took actions in their FY24 bid strategy, expect membership roughly flat but better earnings. “Cost trends” in Medicare Advantage as expected, confident their FY24 bid assumptions are appropriate.

3Q23   8.99 vs 7.46, est 8.44

  • Oct 18, 2023, P=465.69, TTM EPS=32.88, P/E=14X

  • Revs +7.2% to 42.5bn, Benefit Expense Ratio 86.8% vs 87.2%  OpInc +12.6% to 2.5bn

  • Medical Membership -664k q/q due to Medicaid attrition. +42k y/y

  • Unrealized losses 2.4bn vs 1.9bn last quarter.

  • FY23 Outlook adj EPS raised to >$33.00 (est 32.93)

  • Conducted another operation efficiency review and taking decisive action, 700m charge includes some internal software development w/o, lease terminations, severance

  • Various tailwinds next year, Medicaid headwind but expect it to return to growth in FY25, Mgmt thinks FY24 EPS est of 37 “is appropriate”, would be 12% growth.

2Q23   9.04 vs 7.97 +13.4%, est 8.77

  • July 19, 2023, P=443.69, TTM EPS=31.35, P/E=14X, FY24 P/E=12X

  • Revs +12.7% to 43.4bn, OM 6.1% vs 6.1%, OpInc +12% to 2.6bn

  • Health Benefits +10.5% to 38bn, OpInc +20.6%, Carelon +18.4% to 11.9bn, OpInc +6.8% due to favourable benefit last year.

  • OCF 1.95bn vs 2.45bn, YTD OCF 8.4bn vs 5bn

  • Medical membership +2% to 48m, -135k q/q due to Medicaid attrition due to ineligibility redeterminations by states, mgmt. expects transition to alternatives.

  • Benefit Expense Ratio 86.4% vs 87.1%

  • Mgmt has factored higher medical cost structure from covid

  • Results include a charge (maybe 30-40m or .09-.13 off EPS?) due to an adverse court ruling in a certain state pushing certain covid costs on to health insurers retroactive to the start of the pandemic (Health Benefit margins would have improved by closer to 60bs from 47bps improvement)

  • Unrealized loss in fixed income portfolio $1.9bn, maturities more weighted to shorter-term so should be manageable.

  • FY23 Outlook: EPS >32.85 (est 32.74)

1Q23   9.46 vs 8.25 +14.7%, est 9.26

  • Apr 19, 2023, P=483.08, TTM EPS=30.28, P/E=16X

  • Revs +10.6% to 41.9bn, OpInc +16.6% to 2.8bn

  • Health Benefits +9.6% to 37.28bn, OM 5.8% vs 5.4%, OpInc +16.6%

  • Carelon +17.7% to 11.3bn, OM 6.4% vs 6.2%, OpInc +20.6%

  • Medical membership +2.9% to 48.1m, Benefit Expense Ratio 85.8% vs 86.1%, OM 6.8% vs 6.4%

  • FY23 Outlook EPS >32.70 (est 32.79) or > +13%, implies 2H +11%

 

4Q22 5.23 vs 5.14 est 5.19 down from 5.39, FY22 EPS 29.07 VS 25.98

  • Jan 25, 2023, P=478.52, TTM EPS=29.07, P/E=16X

  • Raised divvy 16% to 1.48, 1.2% yield

  • Revs +10.1% to 39.7bn, Benefit Expense Ratio 89.4% vs 89.5%, OM 3.4% vs 3.3%, OpInc +15% to 1.37bn

  • Medical membership +4.8% to 47.5m

  • FY23 Outlook: adj EPS >32.60 (at least +12%, est 32.67)

 

3Q22   7.53 vs 6.79 +10.9%, est 7.15

  • Oct 19, 2022, P=478.27

  • Revs +11.5% to 39.6bn

  • Medical enrollment 47.3m

  • FY22 Outlook EPS >28.95

 

2Q22   8.04 vs 7.03 +14.4%, est 7.74

  • Jul 20, 2022, P=497.43, TTM EPS=28.23, P/E=18X

  • Revs +15.6% to 38.5bn, OpInc +15.6% to 38.5bn

  • Medical enrollment +6.1% to 47.1

  • FY22 Outlook: EPS >28.70

June 28, 2022 – Changed name to Elevance Health, ticker to ELV

4Q19   3.88 vs 2.44 +59%, est 3.88, FY19 adj EPS 19.44 vs 15.89

  • Jan 29, 2019, P=290.32, TTM EPS 19.44, P/E=15X, FY20 P/E=13X

  • Raised dividend 19% to 3.80

  • Revs +16.4% to 27.1bn, Benefit expense ratio 89% vs 86.8% predominantly due to 1-year waiver of health insurance fee, FY19 Medical cost trend +6%, expect +3.5-4.5% in FY20

  • Operating Gain +46% to 1.1bn, OM 4% vs 3.2%, FY19 Operating Gain +10.6% to 6bn, OM 5.8% vs 5.9%. Operating Gain driven by launch of ingenioRx, greater penetration of value-added services, higher permiums from rate adjustments, membership growth in Medicaid, partly offset my margin normalization and higher SG&A to support growth.

  • Medical enrollment 41m, +1.1m y/y

  • MLR being impacted by changing business mix, headwinds include faster growing Govt business, Medicaid acquisitions, and margin normalization in individual business partly offset by improved Medicaid performance.  

  • By end of 2020, expect to consolidate from 6 technology platforms to 2, expect 80% migration to destination platform by end of FY20.

  • Using AI, Total Health, Totally You reduced hospital admissions by 12% and ER vists by >10%

  • FY20 Guidance: 13% revenue growth, solid membership growth, adj EPS incl 2.30 from accelerated launch of ingenioRx >22.30, +15%, est 22.71, expect Benefit Expense Ratio 85.3%-86.3% vs 86.8% in FY19, Guidance includes acquisitions of Missouri and Nebraska Medicaid plans but does not include acquisition of Beacon which should close later in 1Q.  Guidance also includes $0.80 headwind from health insurance fee (previously expected $0.50), 1H20 EPS will be about 55% of FY20 and a little more than half of that will be 1Q20.  

  • Solid results, guidance is strong despite EPS a bit lower than estimates (15% growth is solid for a company at 15X trailing EPS, considerably lower than UNH), good to see forecast for improvement in Benefit Expense Ratio and Medical Cost Trend. 

 

UNH reported 4Q19 Revs +0.8%, EPS +19%, FY20 guidance adj EPS +7.5%-9.5% to 16.25-16.55, TTM P/E 20X, FY20 P/E=18X

3Q19   4.87 vs 3.81 +27.8%, est 4.82

  • Oct 23, 2019, P=260.25, TTM EPS=17.96, P/E=14X, FY 20 P/E=11X

  • Revs +15.1% to 3.5bn, Benefit Expense Ratio 87.2% vs 84.8% predominantly due to 1-year waiver of health insurer fee, also unfavourable development in a few large groups in Commercial that they will be terminating later this year. Expect FY MLR 86.5%-86.8%

  • Operating Gain +22.3% to 1.5bn, YTD +4.8%, OM 5.8% vs 5.4%

  • Medical enrollment 41m, +132k q/q

  • FY19 Outlook: EPS raised to >19.40, raised at least 0.10, implies 4Q +56% to $3.81

  • FY2020 mgmt expects core adjusted EPS growth near low end of 12-15% plus contribution from IngenioRx, margin improvement in Medicaid, membership growth, increased penetration of specialty and clinical programs in fee-based businesses, and accretion from capital deployment.  Those drivers to be partially offset by margin normalization in individual business, dilution from government contracts in Medicaid, and growth in group Medicare and the return of the health insurance fee.  

2Q19   4.64 vs 4.25, +9.2%, est 4.61 down from 4.87

  • July 24, 2019, P=302.59, TTM EPS=18X

  • Revs +10.8% to 25.2bn, Benefit expense ratio 86.7% vs 83.4%

  • Operating Gain -8.1% to 1.4bn, OM 5.7% vs 6.9%, adj EBT -3%, EPS +9% on lower tax rate

  • Medical enrollment 40.9m, +9k q/q

  • FY19 Outlook: EPS Raised to >19.30, ingenioRx expected to contribute upper end of .70-.90 range

  • Mgmt says they expected increase in benefit expense ratio, primarily due to the 1-year waiver of the health insurance tax in 2019 and medical cost increase in Medicaid

  • Stock soft on higher expenses driving weak operating results however FY19 guidance implies significant EPS growth in 2H. 

  • Conference call comments to follow.

1Q19   6.03 vs 5.41, +11.5%, est 5.86

  • Apr 24, 2019, P=250.64, TTM EPS=16.51, P/E=15X, FY19 P/E=13X, 

  • Revs +9.2% to 24.4bn, Benefit expense ratio 84.4% vs 81.5%

  • Operating Gain +3.9% to 1.94bn, OM 8% vs 8.4%, EBT +3.5%, EPS +11.5% on lower tax rate

  • Medical enrollment 40.8m vs 39.6m, +905k q/q, 75% of which is from risk-based membership, strongest in almost a decade. 

  • Guidance: FY19 Revs unchanged from last guidance, EPS up a bit, now >$19.20

  • Decent results ahead of launch of ingenioRX which will help drive strong growth, stock is cheap following fear-driven selloff of political rhetoric of free healthcare for all, difficult to say how long that will continue to weigh on the stock.

 

4Q18   2.44 vs 1.29, est 2.19 up from 2.13, FY18 EPS 15.89 vs 12.04

  • Jan 30, 2019, P=272.71, TTM EPS=15.89, P/E=17X

  • Revs +3.8% to 23.3bn, Benefit expense ratio 86.8% vs 88.6% (Benefit expense +1.4%)

  • FY18 Medical Cost trend was ~+5.9%, expect ~+6% in FY19 (not factoring lower drug costs from new PBM contract)

  • Operating Gain +96% to 750m, 4Q18 EBT+330%, FY18 EBT +27.8%

  • Raised dividend 6.7% to 3.20, yield 1.2%

  • Medical Enrollment 39.9m vs 40.3, increased q/q due to Commercial & Specialty and Government, partly offset by a decline in Medicaid

  • Launching IngenioRx in 2Q19 but not all customers moving over right away (some in 2020)

  • Guidance: FY19 Revs ~100bn incl premium revs 90.5-92.5bn vs 85.4bn from premiums, Benefit Expense Ratio 86.2% +/- 30bps (vs 84.2% due to health insurer fee moratorium), adj EPS >$19 (+19.6%, est 17.61)

  • Guidance reflects strong growth across all business lines and a partial contribution from IngenioRx.  Expects 1.2m new members with 150-300k in Commercial, 450-550k in Medicaid, 250-350k in Medicare.  Ex IngenioRx, expect EPS growth at high-end of their upper single-digit to low double-digit growth, possibly just under $1/share from IngenioRx and possibly another $1.5-$2 in 2020?  

3Q18   3.81 vs 2.65, +44%, est 3.70

  • Oct 31, 2018, P=265.49, TTM EPS=14.76, P/E=18X, FY19 P/E=15X

  • Revs +4% to 23bn, Benefit expense ratio 84.8% vs 87%

  • Operating Gain +27% to 1.25bn, adj EBT +24%, significant improvement in Commercial & Specialty

  • Medical Enrollment -2% to 39.5m

  • Guidance: Raised adj EPS to >15.60 (estimates moved up to 15.50)

  • Seeing benefits from improved execution including sales force automation, new clinical programs, expect continued benefits in 2019 and beyond

  • Once IngenioRx is fully transitioned after 2020 launch, expect >4bn of pharmacy savings with majority flowing to customers and 20% or more flowing to shareholders (2020 partial year)

  • General discussion of 2019: Headwinds include ongoing regulatory uncertainty on health insurer fee, expected dilution from new contracts in Medicaid and group Medicare, ongoing investments to drive revenue growth. Tailwinds include Growth in Medicare Advantage, Commercial and fee-based businesses, increased accretion from 2018 capital deployment, timing benefit of Health Insurance fee.  Feel current 2019 EPS estimates are low and slightly below their long-term EPS growth target of high single digit to low double digit, probably also means 2018 EPS will be meaningfully higher than 15.60

2Q18 4.25 vs 3.37, est 4.16 down from 4.40

  • July 25, 2018, P=246, TTM EPS=13.65, P/E=18X, 16X FY18 Guidance.

  • Revs +2.3% to 22.7bn, Benefit expense ratio 83.4% vs 86.1%, FY medical cost trend unchanged.

  • Operating gain +27.1% to 1.56bn, EBT +24.7% due to lower benefit expense

  • Medical enrollment -2.2% to 39.5m

  • Guidance: Raised adj EPS to to >15.40 (estimates have run up to 15.41)

  • Looking into 2019, they remain focused on improving sales execution and building momentum in Commercial. Mgmt feels Medicare is a significant opportunity as Anthem historically was under-invested. IngenioRx to launch January 1st, 2020, will drive lower costs for Anthem and consumers.

1Q18   5.41 vs 4.68, est 4.91 up from 4.62

  • Revs flat at 22.3bn, Benefit expense ratio 81.5% vs 83.7%, FY medical cost trend unchanged.

  • OpInc (operating gain) +17.8% to 1.87bn, EBT +17.5% due to lower benefit expense and interest

  • Medical enrollment -2.5% to 39.6m due to individual and Local Group fully insured and Medicaid which was partly offset by growth in National, Medicare, and BlueCard. Increased premiums, had growth due to acquisitions and organic growth in medicare, declines in Individual ACA.

  • Guidance: Raised adj EPS to >15.30

  • Results well ahead of estimates especially relative to where they were 3 months ago.

  • Mgmt discussed the organic growth opportunities with developing their PBM, IngenioRx, and the capital efficiency.

4Q17   1.29 vs 1.76, est 1.27 down from 1.38, FY17 12.04 vs 11.00

  • Raised div 7%

  • Revs +4.5% to 22.4bn, benefit expense ratio 88.6% vs 87.2%, FY17 medical cost trend +6.5%

  • Medical enrollment +0.8% to 40.2m, SG&A 15.1% vs 15.2%, Net unrealized gains 834.8m

  • Changing reporting for medical cost trend, FY18 will be Allowed Amount, FY17 was Paid Amount (Allowed Amount less copays and deductibles), Expects FY18 medical cost trend +6% +/ 0.5% vs +5.5% for FY17 on same basis.

  • New CEO wants to increase focus on developing innovative solutions to drive affordability and flexibility. See significant opportunities for growth in Medicaid to help states better manage healthcare amid tight budgets. Also working to capture opportunities in Medicare where they historically lagged. Also see opportunities in commercial with top scores in customer satisfaction, preventative care.

  • Guidance: FY18 adj EPS >$15 (>+24%) incl $2 benefit from tax reform, ex 0.72 unfavourable items, >+8% ex tax reform, mgmt. optimistic “over time” they can move up to low double digit EPS growth.

  • Recently Amazon, JP Morgan, and Berkshire Hathaway announced a venture to lower healthcare costs for their employees, ANTM’s net profit margin in FY17 was 3.6%, not likely a target.

3Q17   2.65 vs 2.45, est 2.42

  • Adj EPS excludes items .15 vs (.15)

  • Revs +4.6% to 22.1bn, Benefit expense ratio 87% vs 85.5%

  • Medical enrollment +0.9% to 40.3m

  • FY Guidance raised, adj EPS 11.90-12.00

  • ANTM announced launch of a PBM to start in 2020, see it as a growth driver.

2Q17   3.37 vs 3.33, est 3.25

  • Adj EPS excludes .21 of negative items

  • Revs +4.3% to 22.2bn, Benefit expense ratio 86.1% bs 84.2%

  • Medical enrollment +1.6% to 39.8m

  • Increased dividend from 2.60 to 2.80

  • FY Guidance: Revs 88.5-89.5bn, EPS >11.70, benefit expense ratio unchanged at 87% +/- 30 bps, raised guidance reflects improved results in “Commercial Local Group business and reflects the uncertain nature of the Individual ACA-compliant marketplace” and does not factor in lower drug pricing they believe they are entitled to.

  • Decent results, company trading at a discount to the market and in line with a historical market average

1Q17   4.68 vs 3.46,  est: 3.86

  • Adj EPS excludes .95 of adjustment items

  • Revs +9.9% to 22.3bn due to premium increases and higher enrollment in Medicaid, Medicare, and Local Group and self-funded.

  • Benefit expense ratio 83.7% vs 81.8% due to 1 year waiver of the health insurance tax in 2017 and higher medical costs in Medicaid.

  • SG&A expense ratio 14.3% vs 15.8% due to efficiency initiatives and fixed cost leverage.

  • Medical enrollment +1.8% to 40.6m members, better than mgmt expected.

  • Gov’t bus 54% of revs but only 20% of operating gain, commercial & specialty margin 12.7%, gov’t was 2.6%

  • FY Guidance: Revs 88-89bn (est 87.2), adj EPS>11.60 (vs 11.00, est 11.58), benefit expense ratio ~87% +/- 30 bp

  • Solid results, and solid balance sheet, FY guidance implies room for some softness (possibly conservatism) in earnings and enrollment for remainder of the year due to the newness of certain membership and the lack of clarity on morbidity in that population.