On Monday, Jefferies made an adjustment to the stock price target for Elevance Health Inc. (NYSE: ELV), lowering it to $529 from the previous $600, while reiterating a Buy rating on the company's shares. The firm's analyst highlighted challenges faced by the company, noting a shift in medical loss ratio (MLR) and management's expectations.
Elevance's reputation for prudent underwriting is currently under scrutiny as the company navigates the healthcare landscape. The analyst estimated that approximately 100 basis points of the third-quarter MLR were carried over from the second quarter as negative development.
Despite this, the cost trend is accelerating, although it has not reached extreme levels. This situation lends some credibility to management's prediction that the trend will plateau in the fourth quarter.
The projections for Elevance's Medicaid MLR in 2025 show an increase of 40 basis points, contrasting with management's expectations of maintaining stable margins. The Medicare Advantage margins are also likely to underperform. However, the impact of this underperformance could be somewhat offset by the company's effective value-based care (VBC) strategies, which are estimated to be 40% effective according to Jefferies' analysis.
Jefferies bases its price target on 14 times the firm's projected earnings per share of approximately $38 in 2026, which supports the new target of $529. The firm encourages investors to maintain their Buy position in Elevance Health Inc., indicating a level of confidence in the company's future performance despite the recent adjustments.
In other recent news, Elevance Health Inc. has faced a series of adjustments in its financial outlook. The company reported lower than expected Q3 2024 earnings, with an adjusted diluted EPS of $8.37, due to increased medical costs in its Medicaid business.
Consequently, Elevance adjusted its full-year outlook for adjusted EPS to approximately $33. Despite these changes, the company reported a 5% increase in total operating revenue, reaching $44.7 billion, and significant growth in commercial membership by nearly 600,000 year-over-year.
In the same vein, Leerink Partners, RBC Capital Markets, and Truist Securities have all revised their price targets for Elevance, reducing them to $515, $478, and $520 respectively, while maintaining positive ratings on the company's stock. These adjustments come in response to Elevance's updated financial outlook and the company's projection of a mid-single-digit EPS growth for 2025.
In addition to these developments, Elevance Health has announced the acquisition of CareBridge for home-based care. The company is projecting strong revenue growth in 2025 and beyond, anticipating growth in individual Medicare Advantage membership for 2025, and expecting continued growth in the commercial business.
Despite the challenges in the Medicaid sector, Elevance Health remains committed to its long-term growth strategies. These are the recent developments surrounding Elevance Health Inc.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Elevance Health's financial position and market performance. The company's market capitalization stands at $99.91 billion, with a P/E ratio of 15.71, suggesting a relatively moderate valuation compared to earnings. Elevance Health's revenue for the last twelve months reached $174.01 billion, with a 3.2% growth rate, indicating steady expansion in line with the healthcare sector's overall growth.
InvestingPro Tips highlight some positive aspects of Elevance Health's financial health. The company has been aggressively buying back shares, which can potentially increase shareholder value. Moreover, Elevance Health holds more cash than debt on its balance sheet, providing financial flexibility in a challenging healthcare environment. This strong cash position aligns with the analyst's view on the company's ability to navigate current market conditions.
Another notable InvestingPro Tip is that Elevance Health has raised its dividend for 14 consecutive years, demonstrating a commitment to returning value to shareholders. This consistent dividend growth, coupled with a current dividend yield of 1.51%, may appeal to income-focused investors despite the recent stock price volatility.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on Elevance Health, providing a deeper understanding of the company's financial health and market position.
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