On Thursday, BofA Securities adjusted its stance on Elevance Health Inc. (NYSE:ELV) stock, shifting the rating from Buy to Neutral. The firm also revised its price target downward to $530 from the previous $646.
The reassessment follows observations of increased Medicaid pressure reported in the second quarter by both Elevance and UnitedHealth (NYSE:UNH), raising uncertainties about the future of Medicaid margins and recovery timing.
The analyst pointed to the existing market conditions where competitors such as Centene (NYSE:CNC) Corporation, Cigna (NYSE:CI), and Molina Healthcare (NYSE:MOH) are trading at a significant discount compared to Elevance.
Despite Elevance's diversified portfolio and quality offerings, which may justify a certain level of premium, the market's pricing dynamics are seen as a limiting factor for the stock's potential growth.
The downgrade also takes into account a shift in the perception of Elevance in relation to Medicare Advantage exposure. With UnitedHealth posting better-than-expected results and a potentially more favorable regulatory landscape, the previous view of Elevance as a company without Medicare Advantage exposure is likely to change.
Further, BofA Securities modified its earnings per share (EPS) estimates for Elevance, factoring in an additional 100 basis points of Medicaid margin pressure. This adjustment leads to a new price-to-earnings (P/E) multiple forecast, from 15.5 times the 2025 estimated earnings to 13.0 times, which is now slightly below the five-year average compared to being above it previously.
This change reflects expectations for a period of slower growth following the end of commercial repricing and pharmacy benefit manager (PBM) insourcing, as well as increased medical loss ratio (MLR) pressure from Medicaid.
In light of these factors, BofA Securities has reduced its price objective for Elevance and shifted the stock's rating to Neutral, signaling a more cautious outlook on the company's near-term performance.
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