Insights

• Elevance Health is experiencing revenue growth, but profitability is declining due to increasing costs and expenses.
• The company has a healthy liquidity position, but relies heavily on debt financing, which could increase financial risk.
• Elevated Medicaid costs and potential changes to Medicare Advantage rates and ACA subsidies pose risks to the company's future outlook.
• Management is focused on integrating acquired assets and managing costs to improve profitability and drive long-term growth.
• The company's valuation may be lower than its peers, presenting a potential investment opportunity.

Analysis

• Revenue - Revenue has been increasing, driven by premium rate adjustments and Carelon business expansion, but offset by lower Medicaid membership. - The growth trend is decreasing, indicating that revenue growth may not be sustainable at the current rate. - The company's revenue growth is higher than the industry average, suggesting a competitive advantage.
  • Profitability
    • Profitability is declining, as evidenced by decreasing operating income and net income.
    • Increasing costs and expenses are putting pressure on margins.
    • The company's net profit margin is higher than the industry average, but decreasing, indicating a need for improved cost management.
  • Liquidity
    • The company has a healthy liquidity position, as indicated by a current ratio greater than 1.
    • The current ratio is slightly increasing, suggesting improving liquidity.
    • The company's liquidity is better than the industry average.
  • Solvency
    • The company relies heavily on debt financing, as indicated by a high debt-to-equity ratio.
    • The debt-to-equity ratio is increasing, suggesting increasing financial leverage.
    • The company's financial leverage is comparable to the industry average.
  • Operational Efficiency
    • The company's enterprise value to sales ratio is relatively low, suggesting that it may be undervalued.
    • The enterprise value to sales ratio is decreasing, indicating declining valuation.
    • The company's valuation is lower than the industry average.
  • Cash Flow Analysis - Operating cash flow is decreasing, indicating potential challenges in core business cash generation. - The company is actively investing in acquisitions, as evidenced by increasing net assets from acquisitions. - Financing activities are fluctuating, reflecting changes in the company's debt financing strategy.
  • Risk Factors
    • Elevated Medicaid costs are expected to continue impacting margins, highlighting ongoing challenges in this segment.
    • Potential changes to Medicare Advantage rates and ACA subsidies remain uncertain, creating some risk to the company's outlook.
    • The company faces ongoing regulatory, legal, and operational risks that could impact its financial performance and growth prospects.
  • Future Outlook
    • Management expects revenue growth in the high-single to low-double-digit percentage range in 2025.
    • The company anticipates a slight year-over-year improvement in the adjusted operating expense ratio in 2025.
    • The company is focused on integrating acquired assets to unlock greater value and drive growth in Carelon.

Benchmarks (as of 2025-02-28)

• Performance Comparison:

  • Elevance Health, Inc. (ELV) has generally underperformed the Health Care Select Sector SPDR Fund (XLV) over the past three years. While ELV has shown some periods of overperformance in the short term, such as Year-To-Date (YTD) and 1 Week, it has significantly underperformed over longer periods like 6 Months, 1 Year, 2 Years, and 3 Years. For example, over the last three years, ELV has returned -8.82% compared to XLV's 20.87%.

• Risk and Return Analysis:

  • The annualized returns for ELV are consistently lower than those of XLV. Over the past year, ELV's annualized return was -19.41%, while XLV's was 3.39%. This trend continues over 2-year and 3-year periods, indicating that ELV has provided lower returns compared to XLV.
  • ELV has generally exhibited higher annualized volatility compared to XLV. For instance, in Q3 2023, ELV's volatility reached 38.17%, while XLV's was 12.04%. This suggests that ELV's returns are more dispersed and subject to greater fluctuations than those of XLV.
  • ELV's maximum drawdown was -34.48% on 01/02/2025, significantly larger than XLV's maximum drawdown of -16.06% on 06/17/2022. This indicates that ELV carries a higher risk profile, with the potential for more significant losses from previous peaks compared to XLV.

• Risk-Adjusted Performance:

  • The Sharpe Ratio for ELV has generally been lower than that of XLV, indicating that ELV offers a less favorable risk-adjusted return. As of February 2025, ELV's Sharpe Ratio is -0.75, while XLV's is 0.44. This suggests that XLV provides better compensation for the level of risk taken.
  • ELV's beta values have generally been below 1, indicating that it is less sensitive to market movements than the overall market. However, ELV's beta has shown some fluctuation, suggesting its sensitivity to market movements is less stable than XLV's. As of February 2025, ELV has a beta of 0.35, and XLV has a beta of 0.41.

• Overall Assessment:

  • Based on the data, Elevance Health, Inc. (ELV) has underperformed Health Care Select Sector SPDR Fund (XLV) over the analyzed period. ELV exhibits higher volatility, larger drawdowns, and lower risk-adjusted returns compared to XLV. While ELV's beta suggests it is less sensitive to market movements, its fluctuating beta and higher volatility indicate a less stable risk profile. XLV, on the other hand, offers more consistent performance, lower volatility, and better risk-adjusted returns, making it a potentially more stable investment option compared to ELV.

Peers Price History(as of 2025-02-28)

• Performance Comparison:

  • Elevance Health (ELV) has generally outperformed Humana (HUM) and Centene Corp (CNC) over longer periods (2 and 3 years). However, in the shorter term (6 months), Elevance Health (ELV) has underperformed both peer companies. Year-to-date, Elevance Health (ELV) has outperformed both Humana (HUM) and Centene Corp (CNC).
  • The consistency of Elevance Health's (ELV) performance varies. While it shows strong outperformance over 2 and 3-year periods, its more recent performance has been mixed, indicating potential shifts in market dynamics or company-specific factors.

• Risk and Return Analysis:

  • Elevance Health (ELV) has provided higher annualized returns compared to Humana (HUM) and Centene Corp (CNC) over 2 and 3-year periods. However, its 1-year annualized return is negative, but still better than its peers.
  • The annualized volatility of Elevance Health (ELV) has generally been lower than that of Centene Corp (CNC) but comparable to Humana (HUM), except for recent spikes in Humana's (HUM) volatility. This suggests that Elevance Health (ELV) is typically less risky than Centene Corp (CNC) but similar in risk to Humana (HUM).
  • Elevance Health's (ELV) maximum drawdown of -34.48% is less severe than Humana's (HUM) -57.75% and Centene Corp's (CNC) -42.47%, indicating a more conservative risk profile compared to its peers.

• Risk-Adjusted Performance:

  • Elevance Health (ELV) has generally exhibited better risk-adjusted returns, as indicated by higher Sharpe Ratios compared to Humana (HUM) and Centene Corp (CNC) for much of the analyzed period. However, recent data shows negative Sharpe Ratios for all three companies.
  • The Beta value of Elevance Health (ELV) has consistently been below 1, suggesting that the stock is less sensitive to market movements compared to its peer companies.

• Overall Assessment:

  • Elevance Health (ELV) has demonstrated strong historical performance and risk-adjusted returns compared to Humana (HUM) and Centene Corp (CNC). While recent performance has been mixed, Elevance Health (ELV) maintains a more conservative risk profile, as evidenced by lower volatility and drawdowns. The higher Sharpe Ratios for much of the analyzed period suggest that Elevance Health (ELV) has been more efficient in generating returns relative to the risk taken.
  • Recent trends indicate increased volatility for Humana (HUM) and negative Sharpe Ratios for all three companies, suggesting potential challenges or shifts in market conditions affecting the managed health care industry.

Peers Fundamentals(as of 2024-12-31)

1. Market Position and Size:

   • Elevance Health (ELV) is the largest company in its peer group by market capitalization, with a market cap of 90231.5, significantly exceeding Humana (HUM) at 32624.8 and Centene (CNC) at 28849.9.
   • ELV's substantial market capitalization is supported by its higher revenue (176810.0) and net income (5980.0) compared to its peers, indicating a strong market presence and financial performance.
   • The company's dominant market position is further reinforced by its ability to generate higher returns on assets, equity, and capital, showcasing its efficiency in utilizing resources.

2. Profitability and Efficiency:

   • ELV demonstrates superior profitability, with a Net Profit Margin of 3.38, significantly outperforming Humana (1.02), Centene (2.03), and the industry average (-4.55).
   • The company's efficiency in generating returns is evident in its higher Return on Average Assets (5.3), Return on Average Total Equity (14.83), and Return on Average Total Capital (9.33) compared to its peers and industry benchmarks.
   • ELV's ability to maintain strong profitability metrics while operating at a large scale highlights its effective cost management and operational efficiency.

3. Financial Health and Stability:

   • ELV exhibits sound financial health, characterized by strong cash flow generation and manageable debt levels.
   • The company's Net Operating Cash Flow of 5808.0 and Free Cash Flow of 4552.0 significantly exceed those of its peers, indicating its ability to generate substantial cash from its operations.
   • While ELV's Total Debt to Total Equity Ratio of 77.56 is slightly higher than its peers, its strong cash flow coverage suggests that its debt obligations are manageable.

4. Valuation and Market Perception:

   • ELV's valuation metrics, including its Price to Earnings ratio of 15.46 and Price to Sales Ratio of 0.52, suggest that it is reasonably valued compared to its peers and the industry average.
   • The company's Enterprise Value To Sales ratio of 0.66 is greater than Centene (0.31) but less than the industry average (0.8), indicating a balanced valuation relative to its revenue.
   • Overall, the market appears to perceive ELV as a stable and profitable company, as reflected in its valuation metrics.

5. Cash Flow and Capital Management:

   • ELV demonstrates strong cash flow generation capabilities, with a Net Operating Cash Flow of 5808.0 and Free Cash Flow of 4552.0, significantly exceeding its peers.
   • The company's Total Capital Expenditure of 1256.0 indicates its willingness to invest in future growth opportunities.
   • ELV's efficient capital management is evident in its ability to generate substantial cash flow while maintaining a reasonable level of capital expenditure.

6. Growth and Future Prospect:

   • ELV's revenue growth has been consistently lower than the peer average, which could pose a challenge to its future market share and competitive position.
   • The company's 3-year and 5-year CAGR figures are generally lower than the peer group average, indicating slower long-term growth.
   • To enhance its future prospects, ELV may need to focus on strategies to accelerate its revenue growth and improve its overall growth trajectory.

7. Potential for Investment:

   • Elevance Health (ELV) presents an attractive investment opportunity due to its strong financial health, high profitability, and robust cash flow generation.
   • While its revenue growth is slower than some peers, its superior earnings and cash flow metrics, combined with a reasonable valuation, make it a compelling investment choice within the managed healthcare industry.
   • Investors may find ELV appealing due to its stability, profitability, and potential for long-term value creation.

8. Key Risks and Considerations:

   • A primary risk for ELV is its slower revenue growth compared to its peers, which could impact its future market share and competitive position.
   • Investors should also consider ELV's higher debt levels relative to equity, although its strong cash flow coverage mitigates some of the concerns.
   • Changes in healthcare regulations and reimbursement policies could also pose a risk to ELV's profitability and financial performance.

9. Overall Assessment:

   • Elevance Health (ELV) is a financially strong and well-positioned company within the managed healthcare industry.
   • Its superior profitability, efficient operations, and robust cash flow generation make it an attractive investment opportunity.
   • While its revenue growth lags behind some peers, its overall financial health and market position suggest that it is well-equipped to navigate future challenges and capitalize on growth opportunities.