On Friday, Truist Securities adjusted its outlook on shares of Elevance Health Inc. (NYSE: ELV), reducing the price target to $520 from the previous $620 while maintaining a Buy rating on the company's stock.
The adjustment follows Elevance's third-quarter results, which were characterized by a higher Medical Loss Ratio (MLR) and a lower than expected guide for 2024 and a preliminary view for 2025. This was primarily due to ongoing pressure from Medicaid rate and acuity mismatch.
Despite these challenges, Truist Securities reaffirmed its Buy rating, expressing confidence in the company's long-term prospects. The firm highlighted that Elevance's long-term targets across various segments remain unchanged, including the commitment to a 12% or higher adjusted Earnings Per Share (EPS) Compound Annual Growth Rate (CAGR). Analysts at Truist Securities believe that the Medicaid rate and acuity mismatch will correct over time.
The firm remains optimistic about the core trends at Carelon and the cross-selling opportunities with Health Benefits. Truist Securities also noted Elevance's solid financial flexibility and anticipates that ongoing investments in capabilities and service integration will serve as long-term tailwinds for the company.
As a result of these factors, Truist Securities has adjusted its estimates for Elevance Health. The new price target of $520 reflects these revised estimates and takes into account the lower than anticipated guidance for the upcoming years. The firm expects that Elevance's strategic initiatives and market positions will continue to support its growth trajectory despite the current headwinds.
In other recent news, Elevance Health reported its Q3 2024 earnings, with adjusted diluted earnings per share of $8.37, missing expectations due to increased medical costs in its Medicaid business. The company has adjusted its full-year outlook for adjusted EPS to around $33, attributing this to ongoing hurdles in the Medicaid sector.
Despite these challenges, Elevance Health projects robust revenue growth in 2025 and beyond, anticipating an increase in individual Medicare Advantage membership for 2025 and continued expansion in its commercial business.
The company also reported a significant increase in commercial membership, with nearly 600,000 new members year-over-year, contributing to a 5% increase in total operating revenue, which reached $44.7 billion. However, the consolidated benefit expense ratio rose to 89.5%, primarily due to worsening Medicaid cost trends.
The company recently announced the acquisition of CareBridge for home-based care, aiming to improve member and provider experiences while enhancing operational efficiency. Despite expecting Medicaid margins to remain below long-term targets in 2024, Elevance Health anticipates improvements in 2025. These recent developments highlight the company's strategic positioning and commitment to long-term growth strategies, even amid current challenges in the Medicaid sector.
InvestingPro Insights
Recent InvestingPro data provides additional context to Truist Securities' analysis of Elevance Health Inc. (NYSE: ELV). The company's market capitalization stands at $103.04 billion, with a P/E ratio of 18.13, reflecting its current valuation in light of recent challenges. Despite the lowered price target, Elevance's financial health appears robust, with revenue of $174.22 billion over the last twelve months and a gross profit margin of 28.02%.
InvestingPro Tips highlight some positive aspects that align with Truist Securities' long-term optimism. For instance, Elevance Health has raised its dividend for 14 consecutive years, demonstrating a commitment to shareholder returns.
This is further supported by a current dividend yield of 1.47% and a dividend growth rate of 10.14% over the last twelve months. Moreover, the company's management has been aggressively buying back shares, which could indicate confidence in the company's future prospects.
However, it's worth noting that the stock has taken a significant hit recently, with a 1-week price total return of -11.46% and a 1-month return of -17.63%. This aligns with Truist's lowered price target and reflects the market's reaction to the company's recent earnings and guidance.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Elevance Health, providing a deeper understanding of the company's financial position and market performance.
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