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Elevance Health Earnings: 2023 and 2024 Outlook Looks Solid Despite Emerging Headwinds

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Narrow-moat Elevance Health ELV 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 the third quarter, Elevance turned in 7% revenue, 13% adjusted operating profit, and 21% adjusted EPS growth, including recent share repurchases at attractive prices. Despite the resumption of redetermination activities that reduced Medicaid membership by 3% year over year, overall membership was flat, including strong growth in the individual business (25%), decent growth in Medicare Advantage (5%), and flat commercial growth. Although Medicaid redeterminations may eventually create a membership mix shift from Medicaid to higher-margin employer-sponsored or individual plans, potential coverage gaps create a near-term headwind to profits.

Elevance expects to be able to absorb those and other near-term profit headwinds, though. For 2023, Elevance raised its outlook mildly on strong recent trends, including repurchases, and now expects at least $33 of adjusted EPS in 2023, up from at least $32.85 previously. Looking to 2024-25, headwinds are emerging in Elevance’s Medicare Advantage business with star ratings dropping to just 34% of enrollees in 4-star plans or above, down from 64% last year on weak survey results and tougher cutoffs, which may affect Medicare Advantage marketing in 2024 and bonus payments in 2025. However, management aims to use cost controls, such as those related to this quarter’s business optimization charge, and share repurchases to reach its typical 12% to 15% annual earnings growth goal in the next couple of years. Specifically, management said that adjusted EPS consensus of $37 for 2024 (about 12% growth) looks appropriate including those efforts. While we have mildly adjusted some of our near-term assumptions, our long-term expectations for Elevance have not changed materially and our fair value estimate remains intact.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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