Elevance Health, Inc. ELV is set to report fourth-quarter 2024 results on Jan. 23, 2024, before the opening bell. The Zacks Consensus Estimate for the to-be-reported quarter’s earnings is currently pegged at $3.82 per share on revenues of $44.67 billion.
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The fourth-quarter earnings estimate remained stable over the past 30 days. However, the bottom-line projection indicates a year-over-year decline of 32%. The Zacks Consensus Estimate for quarterly revenues suggests year-over-year growth of 5.2%.
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For the current year, the Zacks Consensus Estimate for Elevance Health’s revenues is pegged at $174.89 billion, implying a rise of 2.8% year over year. However, the consensus mark for current-year EPS is pegged at $32.96, implying a decline of 0.5%, year over year.
Elevance Health beat the earnings estimates in three of the last four quarters and missed once, with the average surprise being negative 2.6%. This is depicted in the figure below.
Elevance Health, Inc. Price and EPS Surprise
Elevance Health, Inc. price-eps-surprise | Elevance Health, Inc. Quote
Q4 Earnings Whispers for ELV
Our proven model does not conclusively predict an earnings beat for the company this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the odds of an earnings beat. That’s not the case here.
ELV has an Earnings ESP of 0.00% and a Zacks Rank #3.
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What’s Shaping ELV’s Q4 Results?
The Zacks Consensus Estimate for product revenues indicates 10.2% growth from the year-ago period’s $5.4 billion. The consensus estimate for premiums indicates a 4.2% increase from the year-ago period. These are likely to have aided revenues in the fourth quarter.
The consensus mark for Commercial Individual membership suggests 28.8% growth from a year ago, while our model estimate suggests a 30.1% increase. Similarly, the consensus estimate for Commercial Fee-based memberships indicates a 1% year-over-year jump, while our estimate implies a 1.3% increase.
Meanwhile, the Zacks Consensus Estimate for Carelon brand’s operating income for the fourth quarter indicates an 18.8% year-over-year increase. Growth in CarelonRx is primarily expected to have aided the brand. The results are likely to have been supported by the increasing number of external pharmacy members served and the Paragon Healthcare buyout.
However, its expenses are likely to have remained elevated in the quarter due to substantial investments in digital capabilities and platforms. High benefit expenses, cost of products sold and interest expenses are likely to have affected profit margins, making an earnings beat uncertain. The Zacks Consensus Estimate for the benefit expense ratio is pegged at 92.37%, higher than the year-ago level of 89.20%. We expect total expenses to have jumped nearly 3% year over year in the fourth quarter.
The Zacks Consensus Estimate for the Health Benefits segment’s operating income for the fourth quarter indicates a 45.9% year-over-year decrease. Also, declining memberships in total Medicare, Medicaid and Employer Group Risk-based are likely to have kept fourth-quarter premium growth under check.
ELV’s Price Performance & Valuation
Elevance's stock has declined 8.8% in the past three months, underperforming the industry’s fall of 5.7%. The stock also underperformed the S&P 500 Index, which has gained 3.3% during the same period. Among the other healthcare plan providers from the broader Medical space, The Cigna Group CI has declined 11.4% during this time, while Molina Healthcare, Inc. MOH shares have dipped 0.2%.
Price Performance – ELV, MOH, CI, Industry & S&P 500
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ELV’s Valuation
The company’s valuation looks relatively cheap compared with the industry average. Currently, ELV is trading at 11.04X forward 12-month earnings, below its five-year median of 13.44X and the industry’s average of 14.06X.
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Investor Considerations
Rising premium rates, product revenues and service fees are aiding ELV’s top line.Given its strong business backed by membership growth in commercial business, the company’s market share will continue to increase. It is optimizing its government business by exiting poor-performing markets. Elevance's strategic acquisitions and new contracts will position the company for long-term growth. It is focusing on expanding its Carelon business, which will boost diversification benefits.
However, the new administration’s expected regulatory steps are introducing a layer of uncertainty to the overall healthcare sector. Trump has signaled plans to overhaul pharmacy benefit managers, entities that negotiate drug prices on behalf of insurers. This can affect ELV’s Carelon unit’s growth. Also, the company’s rising benefit expense ratio means a lower portion of premiums remaining in hand after paying claims.
Conclusion
Growth in commercial business and new contracts will continue boosting its value. For now, current shareholders might consider holding their positions, while potential investors should wait for a more favorable entry point. Investors should keep a close watch on upcoming earnings and regulatory developments to assess their implications for Elevance's performance and long-term prospects.
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