Company Reports

Narrow-moat Elevance delivered slightly higher first-quarter results than expected and mildly increased its 2024 guidance, despite continued medical membership losses from Medicaid eligibility redeterminations. Our near- and long-term forecasts have not changed materially, and we do not anticipate changing our $520 fair value estimate. Recent trades appear close to fair value.

Elevance Health continues to capitalize on its enviable position as the exclusive licensee of the Blue Cross Blue Shield brand in 14 states. We would argue that the Blue Cross Blue Shield brand is the most recognizable and trusted franchise in the U.S. health insurance industry. As the largest Blue Cross Blue Shield operator, Elevance insures a very similar number of medical members as UnitedHealth in the US, which is particularly impressive given its limited geographic reach compared with UnitedHealth's national network. Specifically, Elevance's market share dives deep in its licensed states where it insures about one out of every 3 people. This high local market share remains particularly valuable in health insurance since medical-care providers typically only operate in limited geographic areas, making local market share the most relevant to most reimbursement negotiations with caregivers.

In an unusual development, the Centers for Medicare & Medicaid Services released its final Medicare Advantage, or MA, rate notice that matched its initial rate notice, instead of rising. In this final rate notice, the overall increase in MA revenue to insurers remained lower than the risk score trend, which is likely to pressure MA benefits, pricing, and/or insurer profits in 2025. We are reducing our fair value estimate on Humana by 5% on this disappointing development, given its focus on MA and our expectation that its previous profit goal in 2025 and potential growth in subsequent years may be constrained. However, we are not changing our fair value estimates on the other more diverse managed care organizations, or MCOs, that we cover, and market price declines on this news may create more attractive investment opportunities for investors with a long-term investment horizon. Currently, Humana, CVS, and Centene remain the most attractive MCOs on a price/fair value basis.

Narrow-moat Elevance delivered slightly higher fourth-quarter results and 2024 guidance than we were expecting, despite rising medical utilization trends. However, our long-term forecasts and $520 fair value estimate have not changed materially, and recent trades look close to fair value.

Narrow-moat Elevance Health delivered solid near-term guidance, despite emerging headwinds in its government businesses. At first glance we plan to maintain our $520 fair value estimate or slightly above recent prices.

In advance of the Medicare open enrollment period that starts on Oct. 15, the Centers for Medicare & Medicaid Services, or CMS, released its star ratings that measure the performance of the Medicare Advantage, or MA, plans offered by private insurers. At first glance, we do not anticipate changing our fair value estimates for any managed-care organization, or MCO, based on this new data. However, even as overall MA star ratings largely stabilized after a big drop last year, there were some clear winners and losers in this year's scoring that could affect market sentiment for MCO shares.

Near-term uncertainty is creating an opportunity for long-term investors in the managed-care organization segment. Of the six narrow-moat MCO stocks that we cover—Centene, Cigna, CVS Health, Elevance, Humana, and UnitedHealth—five are trading in undervalued territory, and even the typically premium-priced UnitedHealth looks reasonably valued to us.

Elevance Health continues to capitalize on its enviable position as the exclusive licensee of the Blue Cross Blue Shield brand in 14 states with a planned acquisition in Louisiana representing the 15th state. We would argue that the Blue Cross Blue Shield brand is the most recognizable and trusted franchise in the U.S. health insurance industry. As the largest Blue Cross Blue Shield operator, Elevance recently overtook UnitedHealth as the largest medical insurer in the U.S., and that position is particularly impressive given its limited geographic reach compared with UnitedHealth's national network. Specifically, Elevance's market share dives deep in its licensed states where it insures about one out of every 3 people. This high local market share remains particularly valuable in health insurance since medical-care providers typically only operate in limited geographic areas, making local market share the most relevant to most reimbursement negotiations with caregivers.

Blue Shield of California announced that it was dropping CVS Health for its nonspecialty pharmacy benefit management services in favor of a coalition of providers, including Amazon and the Mark Cuban Cost Plus Drug Company. While these organizations have been making noise as potential PBM entrants for a while, this contract win looks like the first one with any real teeth, in our opinion, and could signal the start of a change in the PBM competitive landscape, particularly for top-tier players CVS, Cigna, and UnitedHealth. We do not expect to change our narrow moat ratings on these MCOs because of this announcement, though.

Elevance Health's strong second-quarter results contributed to a mild 2023 outlook increase and caused the shares to rise closer to our $520 fair value estimate in early trading July 19. Our expectations for the year remain in line with the new target, and we're keeping our fair value estimate intact. The firm's narrow moat looks solid, built on local scale leadership that helps it offer lower prices than most competitors.

Elevance Health turned in strong first quarter results that contributed to a mild increase in its 2023 outlook. Considering those strong trends and cash flows generated since our last valuation change, we are increasing our fair value estimate to $520 from $478 previously. Our narrow moat rating appears intact, too, built on the firm's local scale leadership that helps it offer lower premiums than most health insurers, despite some emerging regulatory headwinds.

Elevance Health (formerly called Anthem) continues to capitalize on its enviable position as the exclusive licensee of the Blue Cross Blue Shield brand in 14 states (with a planned acquisition in Louisiana representing the 15th state). We would argue that the Blue Cross Blue Shield brand is the most recognizable and trusted franchise in the U.S. health insurance industry. As the largest Blue Cross Blue Shield operator, Elevance recently overtook UnitedHealth as the largest medical insurer in the U.S. after acquiring a top-tier Medicare and Medicaid insurer in Puerto Rico. Elevance's position is particularly impressive given its limited geographic reach compared with UnitedHealth's national network. Specifically, Elevance's market share dives deep in its license states where it insures about one out of every 3 people. This high local market share remains particularly valuable in health insurance since medical-care providers typically only operate in limited geographic areas, making local market share the most relevant to most reimbursement negotiations with caregivers.

Elevance Health delivered a strong fourth quarter that helped the firm mildly exceed our expectations. Also, the company set initial guidance for 2023 that looks slightly above our expectations. However, at first glance, minor changes to our near-term estimates have not materially changed our $478 fair value estimate. Our narrow moat rating appears intact, too, and although Elevance remains the U.S. market leader, its narrow moat rating is primarily based on the company's local scale leadership that helps it offer lower premiums than most health insurers. The recently announced acquisition of another Blue Cross Blue Shield licensee (in Louisiana) looks likely to bring another local market share leader into the fold, too, if approved by antitrust regulators.

Elevance Health delivered a strong third quarter and raised its 2022 outlook mildly for the third time in as many quarters. Considering these strong trends and recently generated cash flows, we are raising our fair value estimate by a mid-single-digit percentage to $478 per share. Our narrow moat rating appears intact, too, and is primarily based on the company's local scale leadership that helps it offer lower premiums than most health insurers. For example, Elevance continues to lead the U.S. medical membership landscape with 47 million members at the end of September, higher than even UnitedHealth's 46 million U.S. members, despite the latter's broader national network.

Elevance Health (formerly called Anthem) continues to capitalize on its enviable position as the exclusive licensee of the Blue Cross Blue Shield brand in 14 states. We would argue that the Blue Cross Blue Shield brand is the most recognizable and trusted franchise in the U.S. health insurance industry. As the largest Blue Cross Blue Shield operator, Elevance recently overtook UnitedHealth as the largest medical insurer in the U.S. after acquiring a top-tier Medicare and Medicaid insurer in Puerto Rico. Elevance's position is particularly impressive given its limited geographic reach compared with UnitedHealth's national network. Specifically, Elevance's market share dives deep in its license states where it insures about one out of every 3 people. This high local market share remains particularly valuable in health insurance since medical-care providers typically only operate in limited geographic areas, making local market share the most relevant to most reimbursement negotiations.

The Centers for Medicare and Medicaid, or CMS, released Star Ratings for its Medicare Advantage plans that appear to have declined across the board. In this rating system that is used to identify the highest quality plans and determine bonus payments that plans can share with provider networks, CMS standards appear to have changed, causing contractions in membership percentages in 4-Star plans or better, which could mildly affect financial results of some managed care organizations, or MCOs. For example, CVS's Star Ratings looked relatively weak, causing shares to decline in the midsingle digits in early trading Oct. 7. While we have pulled back on some intermediate-term assumptions for CVS, management has already announced plans to offset these headwinds to meet its longer-term earnings growth goals, including double-digit earnings growth by 2024. Overall, we are not materially changing our fair value estimates or narrow moat ratings for any of the MCOs that we cover based on our initial take of these Star Ratings.

Elevance Health (formerly called Anthem) delivered a strong second quarter and raised its 2022 outlook mildly for the second time in as many quarters, although shares traded down about 6% on an uptick in medical utilization that constrained margins in the employer segment, which was in contrast to trends noted on July 15 by UnitedHealth. We are maintaining our $452 per-share fair value estimate and view Elevance shares as fairly valued. Our narrow moat rating appears intact, too, and is primarily based on its local scale leadership that helps it offer lower premiums than most health insurers. Elevance continues to lead the U.S. medical membership landscape with 47.1 million members at the end of June, higher than even UnitedHealth's 45.8 million U.S. members, despite the latter's broader national network.

Elevance Health (formerly called Anthem) continues to capitalize on its enviable position as the exclusive licensee of the Blue Cross Blue Shield brand in 14 states. We would argue that the Blue Cross Blue Shield brand is the most recognizable and trusted franchise in the U.S. health insurance industry. As the largest Blue Cross Blue Shield operator, Elevance recently overtook UnitedHealth as the largest medical insurer in the U.S. after acquiring a top-tier Medicare and Medicaid insurer in Puerto Rico. Elevance's position is particularly impressive given its limited geographic reach compared with UnitedHealth's national network. Specifically, Elevance's market share dives deep in its license states where it claims average membership share of about 35%. This high local share remains particularly valuable in health insurance since medical-care providers typically only operate in limited geographic areas, making local market share the most relevant to most reimbursement negotiations.

Anthem delivered a strong first quarter and raised its outlook for 2022 a bit. With this strong start to 2022 and cash flows since our last valuation update, we are boosting our fair value estimate in the mid-single digits. Anthem's narrow moat remains intact, too, and is primarily based on its local scale leadership that helps it offer lower premiums than most health insurers. Anthem led the U.S. medical membership landscape with 46.8 million members at the end of March, higher than even UnitedHealth's 45.5 million U.S. members, despite the latter's broader national network.

Anthem continues to capitalize on its enviable position as the exclusive licensee of the Blue Cross Blue Shield brand in 14 states. We would argue that the Blue Cross Blue Shield brand is the most recognizable and trusted franchise in the U.S. health insurance industry. As the largest Blue Cross Blue Shield operator, Anthem recently overtook UnitedHealth as the largest medical insurer in the U.S. after acquiring a top-tier Medicare and Medicaid insurer in Puerto Rico. Anthem's position is particularly impressive given its limited geographic reach compared with UnitedHealth's national network. Specifically, Anthem's market share dives deep in its license states where it claims average membership share of about 35%. This high local share remains particularly valuable in health insurance since medical-care providers typically only operate in limited geographic areas, making local market share the most relevant to most reimbursement negotiations.