Elevance Health’s Q3 Earnings Report: A Mixed Bag Sparks Investor Concerns

Elevance Health (NYSE: ELV) has announced its Q3 financial results, showcasing robust revenues but disappointing earnings that fell short of expectations. The company posted a revenue of $44.7 billion but reported adjusted earnings of $8.37 per share, missing the anticipated $9.66. Furthermore, Elevance revised its full-year earnings forecast downward, resulting in a 14% drop in its stock last week. Let’s explore the details of the company’s performance and its implications for investors.

Examining Elevance Health’s Q3 Performance

Elevance Health saw its Q3 revenue reach $44.7 billion, marking a 5.3% increase year-over-year. This growth was driven primarily by a significant 15% rise in sales from Carelon, which includes Carelon Rx and Carelon Services. The growth in this segment stems from the acquisition of Paragon Healthcare earlier this year. However, the company’s total Medicaid membership fell by 1.5 million, bringing the total down to 45.8 million. This decline is attributed to eligibility reviews, with around 25 million individuals experiencing disenrollment from Medicaid since April 2023, following the end of certain pandemic-era policies.

Investors focused closely on the benefit expense ratio, which was 89.5%, an increase from 86.8% in the same quarter last year. The adjusted operating margin also declined by 70 basis points, settling at 5.3%. Adjusted earnings dipped to $8.37 per share, down from $8.99 the prior year.

Investor Sentiment and Future Outlook for Elevance Health

Despite the top-line revenue beating expectations, Elevance Health’s overall Q3 performance disappointed investors, particularly regarding the revised forecasts for 2024 and 2025. The company adjusted its 2024 earnings outlook to $33 per share, down from a previous estimate of $37. For 2025, they’re predicting only mid-single-digit earnings growth, suggesting an adjusted EPS around $35, below the consensus estimate of $39. This may indicate ongoing challenges related to high medical costs and a smaller Medicaid base, which could continue to hinder performance in the upcoming quarters.

Impact of Q3 Results on ELV Stock

The drop in ELV stock prices highlights investor dissatisfaction with the revised outlook. Currently trading around $430, ELV stock is priced at 13 times its projected 2024 earnings of approximately $33. This P/E ratio is slightly below its three-year average of 14 times, reflecting the uncertain future expectations for 2024 and 2025.

This year, ELV stock has lagged behind the broader market, with an 8% drop while the S&P 500 index gained 22%. Over the last three years, ELV stock performance has shown significant volatility, mirroring market trends. In contrast, the Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has proven to be less volatile and outperformed the S&P 500 each year during this period. These HQ stocks have consistently delivered better returns with lower risk compared to the benchmark index.

[1] Returns as of 10/21/2024
[2] Cumulative total returns since the end of 2016

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.