Morningstar

Elevance Earnings: 2023 Outlook Increased Despite Utilization and Medicaid Redetermination Trends

""
Securities In This Article
Elevance Health Inc
(ELV)

Elevance Health’s ELV 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.

In the second quarter, Elevance turned in 13% revenue, 12% operating profit, and 13% adjusted EPS growth, including recent share repurchases. Despite increasing medical utilization trends and the resumption of Medicaid redetermination activities after the public health emergency, the medical insurance segment led the way, increasing revenue 11% and operating profits 21%. Medical membership grew 2% year over year, including strong growth in the individual business (18%) and decent growth in Medicare Advantage (6%) and Medicaid (5%). Sequentially, Medicaid membership started to decline a bit (down 1%) after the resumption of redetermination efforts in the quarter to ensure only qualified individuals are covered. Eventually, we suspect there will be a membership mix shift from Medicaid to higher-margin employer-sponsored or individual plans, but redeterminations create a near-term risk to profits, especially if there is a coverage gap during this transition.

Overall, though, Elevance turned in a solid quarter that appeared to relieve investors worried about medical utilization trends recently highlighted by key managed-care organization peers. Management said Elevance already tried to price for such trends in 2023 and even mildly raised its 2023 adjusted EPS outlook to at least $32.85 while largely maintaining its margin assumptions, including for its medical loss ratio. Our 2023 EPS forecast remains roughly in line with the firm’s new goal, and we do not anticipate making significant changes to our assumptions based on this announcement.

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

More in Stocks

Consumer Defensives: Despite Angst, Thirsty Investors Have Names to Pursue

Estee Lauder, Kraft Heinz, and Dollar General are our top consumer defensive stocks.
Erin Lash, CFA

Industrials: Many Stocks Overvalued After Q3 Outperformance

Our top stocks in this sector are Chart Industries, Wesco, and CNH Industrial.
Brian Bernard, CFA, CPA

Basic Materials: Despite Index Rise, We See Multiple Long-Term Opportunities

In this sector, our favored stocks are Albemarle, Dow, and FMC.
Andrew Bischof, CFA and Travis Miller

About the Author

Julie Utterback, CFA

Senior Equity Analyst
More from Author

Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily 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.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

Sponsor Center