Elevance's Pre-Q3 Earnings Analysis: Smart Buy Now or Caution Ahead?

Elevance Health, Inc. ELV is set to report its third-quarter 2024 results on Oct. 17, 2024, before the opening bell. The Zacks Consensus Estimate for the to-be-reported quarter’s earnings and revenues is pegged at $9.74 per share and $43.2 billion, respectively.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

The earnings estimate for the to-be-reported quarter has witnessed downward revisions over the past 60 days. The bottom-line projection indicates year-over-year growth of 8.3%. The Zacks Consensus Estimate for quarterly revenues suggests a year-over-year increase of 1.8%.

Image Source: Zacks Investment Research

Elevance beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 2.5%, as you can see below.

ELV’s Q3 Earnings Whispers

However, our proven model does not conclusively predict an earnings beat for Elevance this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.

Earnings ESP: The company has an Earnings ESP of -0.33%. This is because the Most Accurate Estimate currently stands at $9.71 per share, lower than the Zacks Consensus Estimate of $9.74.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Elevance currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Now, let’s see how things have shaped up before the third-quarter earnings announcement.

Q3 Factors to Note for ELV

The Zacks Consensus Estimate for product revenues indicates 6.6% growth from the year-ago period’s $5.2 billion. The consensus mark for Commercial Individual membership suggests 30.9% growth from a year ago, while our model estimate suggests a 33% increase. Similarly, the consensus estimate for Commercial Fee-based memberships indicates a 1.3% year-over-year jump, while our estimate hints at a 1.5% increase.

Its Health Benefits business is likely to have been driven by rate adjustments and overall membership growth. The Zacks Consensus Estimate for the segment’s operating income for the third quarter indicates a 7.4% year-over-year increase, whereas our model envisions 8.4% growth.

Meanwhile, the Zacks Consensus Estimate for Carelon brand’s operating income for the third quarter indicates a 14.1% year-over-year increase, whereas our model predicts 13.8% growth. Growth in both Carelon Services and CarelonRx is expected to have aided the brand. The results are likely to have been supported by the increasing number of external pharmacy members served. These are likely to have positioned the company’s bottom line for a year-over-year increase.

However, its expenses are likely to have remained elevated in the quarter due to substantial investments in digital capabilities and platforms. High benefit expenses and interest expenses are likely to have partially reduced profit margins, making an earnings beat uncertain. The Zacks Consensus Estimate for the benefit expense ratio is pegged at 87.58%, higher than the year-ago level of 86.80%. We expect total expenses to have jumped to more than $40.6 billion in the third quarter.

Also, declining memberships in total Medicare, Medicaid and Employer Group Risk-based are likely to have kept third-quarter premium growth under check. The Zacks Consensus Estimate for premiums indicates only a 0.4% increase from the year-ago period, while our estimate suggests only a 0.1% rise.

ELV’s Price Performance Comparison

Elevance's stock has gained 6.4% in the year-to-date period, outperforming the industry’s rise of 1.5%. However, the stock underperformed the S&P 500 Index, which has rallied 21.9% during the same period. Other healthcare plan providers from the broader Medical space like The Cigna Group CI increased 17% during this time while Molina Healthcare, Inc. MOH shares have dipped 8.6%.

ELV YTD Price Performance

Image Source: Zacks Investment Research

ELV’s Valuation

Despite the share price appreciation, the company’s valuation looks relatively cheap compared with the industry average. Currently, ELV is trading at 12.33X forward 12 months earnings, below its five-year median of 13.46X and the industry’s average of 15X.

Image Source: Zacks Investment Research

Investor Considerations

Rising premium rates, product revenues and service fees are aiding the company’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 will position the company for long-term growth. It is focusing on expanding its Carelon business, which will boost diversification benefits. With the growing demand for PBM services, its Carelon unit is expected to witness higher margins.

Conclusion

Elevance is attractively priced and has solid business momentum. While it is uncertain whether it will exceed earnings expectations in the third quarter, its growth in commercial membership and the expansion of its Carelon business suggest long-term success. Additionally, rising premium rates will support its Health Benefits division. Given these positive factors and its growth potential, investors might consider buying ELV stock now.

7 Best Stocks for the Next 30 Days

Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."

Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. 

See them now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 
Molina Healthcare, Inc (MOH): Free Stock Analysis Report
 
Cigna Group (CI): Free Stock Analysis Report
 
Elevance Health, Inc. (ELV): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research