TipRanks Smart Value #35: Undervalued Vitality
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Dear Investors,
Dear Investors,
Welcome to the 35th edition of our recently launched TipRanks Smart Value Newsletter!
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This Week’s Top Value Pick: Elevance Health (ELV)
Elevance Health (ELV) is a U.S.-based health insurance and services company that provides a broad range of medical, pharmacy, behavioral health, and digital wellness solutions. It operates through multiple brands, including Anthem Blue Cross and Blue Shield, serving individuals, employers, and government programs across the nation. ELV is one of the largest health benefits providers in the U.S., with a growing focus on integrated care and value-based healthcare delivery.
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Care Revolution
Elevance Health’s roots trace back to 1944, when it was founded as Mutual Hospital Insurance, a nonprofit health insurance company based in Indiana. Over the following decades, the company expanded steadily through mergers and acquisitions among regional Blue Cross and Blue Shield plans, building a strong foundation for its nationwide footprint. In 2001, it went public as WellPoint Health Networks. Its merger with Anthem in 2004 created one of the largest health insurers in the United States, serving millions of members under the Blue Cross and Blue Shield brands.
Through the 2000s and 2010s, Anthem continued to scale its operations by acquiring regional health plans and government program providers, deepening its reach in the Medicare and Medicaid markets. This expansion, coupled with its leadership in commercial insurance, supported steady growth in revenue and membership.
A defining milestone came in 2022, when the company rebranded as Elevance Health to reflect its transformation from a traditional health benefits provider into a diversified healthcare enterprise. The restructuring unified its operations under three key brands: Anthem Blue Cross and Blue Shield for health plans, Wellpoint for non-Blue plans, and Carelon for healthcare services, including pharmacy and behavioral health. This move signaled Elevance’s broader ambition to integrate insurance, care delivery, and technology within a cohesive health ecosystem.
The transformation accelerated in 2023, when Elevance strengthened its position in specialty pharmacy with the acquisition of BioPlus, a provider of pharmacy services for complex and chronic conditions such as cancer and multiple sclerosis. The deal enhanced the company’s ability to manage high-cost medications and coordinate care for patients who require advanced treatment. That same year, Elevance streamlined its portfolio by selling its life and disability insurance business to StanCorp Financial, redirecting capital toward faster-growing areas such as pharmacy, home health, and integrated insurance services.
Building on this momentum, Elevance expanded further in 2024 with the acquisition of Paragon Healthcare, adding a nationwide network of infusion centers and specialty pharmacy operations. Later that year, it strengthened its infusion and mail-order pharmacy capabilities through the purchase of Kroger Specialty Pharmacy, improving access to home infusion therapies and expanding its national reach.
The company deepened its presence in home and community-based care with the late-2024 acquisition of CareBridge, a value-based healthcare provider supporting Medicaid and dual-eligible members receiving long-term services at home. This move aligned with Elevance’s commitment to extending care beyond traditional clinical settings and improving outcomes for vulnerable populations. In early 2025, Elevance further diversified its offerings with the acquisition of Verily’s Granular Insurance Company, which specializes in data-driven stop-loss and reinsurance solutions for large employers. The deal strengthened Elevance’s analytics-driven approach to risk management and employer health benefits.
Together, these strategic actions illustrate Elevance Health’s transformation into a comprehensive healthcare enterprise – one that seamlessly integrates insurance, pharmacy, and care delivery to drive growth, enhance competitiveness, and improve health outcomes for millions of Americans.
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Connected Care
Elevance Health operates a diversified, vertically integrated healthcare model that combines insurance coverage with pharmacy, clinical, and technology-enabled care services. Its business spans four segments – Health Benefits, CarelonRx, Carelon Services, and Corporate & Other – designed to drive steady earnings growth and robust cash generation. The Corporate & Other segment includes smaller operations that do not meet reporting thresholds, as well as unallocated corporate expenses. The company’s primary revenue sources are premiums from its health insurance products and fees from its pharmacy benefit management (PBM) business within the Carelon platform.
The Health Benefits segment remains Elevance’s largest contributor, accounting for about 84% of total revenue. It generates income primarily through risk-based insurance premiums paid by individuals, employers, and government agencies, serving roughly 45 million medical members across commercial, Medicaid, and Medicare markets under its Anthem Blue Cross and Blue Shield and Wellpoint brands. This scale provides stable, recurring revenue streams and economies of scale in claims management, creating a strong foundation for earnings growth. Balanced exposure across private and public markets also helps mitigate cyclical risks.
The company’s second major growth engine, Carelon, includes CarelonRx and Carelon Services, together representing around 37% of total revenue.1 CarelonRx provides integrated PBM services and has expanded its specialty and infusion pharmacy capabilities through acquisitions such as BioPlus, Paragon Healthcare, and Kroger Specialty Pharmacy, targeting high-margin therapeutic areas driven by rising demand for complex treatments.
By managing both medical and pharmacy benefits in-house, Elevance leverages data integration and formulary management to enhance cost efficiency and value for clients. Carelon Services, meanwhile, offers care management, behavioral health, analytics, and home-based care solutions. Its expansion through acquisitions has deepened Elevance’s presence in value-based and home care models, generating recurring fee income while helping reduce medical costs in its insurance segment.
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1- The combined segment revenues add up to more than total revenue due to segment cross-reporting, reflecting the integrated nature of Elevance’s healthcare services portfolio.
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Value Shift
Elevance believes the healthcare industry is at a pivotal juncture marked by rising medical costs, greater regulatory oversight, and evolving care delivery models. In response, the company is pursuing a strategy centered on integration, innovation, and disciplined capital allocation to sustain long-term growth. Central to this approach is its value-based care model, which ties provider compensation to patient outcomes rather than service volume. This model promotes preventive care and cost savings by shifting treatments to lower-cost settings such as outpatient centers and home care.
Technology and artificial intelligence are increasingly integral to Elevance’s operations. The company plans to invest several hundred million dollars – about $1 per share – in AI, technology infrastructure, and operational quality initiatives. It has already deployed tools such as HealthOS, a digital health operating system that integrates clinical and claims data, and the Sydney virtual assistant, which offers members personalized health guidance. These tools have delivered tangible efficiencies, including a 68% reduction in claim denials, a more than 100% reduction in peer review requirements, and a 50% decline in chart requests. By the end of 2025, more than 10 million members are expected to have access to Sydney.
Having completed several major acquisitions, Elevance is now prioritizing integration over new deals. The company aims to unlock greater synergies within its Carelon platform, streamline operations, and enhance efficiency under a unified brand. Capital allocation will increasingly favor share repurchases and targeted high-return investments in technology and analytics rather than large-scale M&A activity.
Among Elevance’s core businesses, Medicaid remains the largest and most closely watched. The program faces near-term pressure from elevated medical utilization – driven by state eligibility redeterminations, the process by which states reassess member eligibility – and reimbursement rates that have lagged cost increases. Management expects Medicaid margins to decline about 50 basis points in 2025 and another 125 basis points in 2026, marking 2026 as the low point before recovery begins in 2027. The company is working with states to realign payment rates, refine coverage for high-cost treatments such as GLP-1 weight-loss drugs, and improve site-of-care efficiency. Over the long term, Elevance targets sustainable Medicaid margins of 2%–4% once rates normalize.
In Medicare Advantage, Elevance continues to focus on profitability and quality. The company has exited unprofitable plans affecting roughly 150,000 members and is concentrating on Health Maintenance Organization (HMO) and Dual-Eligible Special Needs Plans (D-SNPs), which align with its coordinated care strategy. Margins are expected to stabilize or slightly improve in 2025, excluding one-time settlements.
The commercial segment, which provides coverage to employer groups and individuals, continues to perform steadily, supported by Elevance’s integrated medical-pharmacy model, strong client retention, and expanding fee-based relationships where employers pay administrative fees while retaining insurance risk. Although cost trends, especially in behavioral health, surgeries, and pharmacy, remain elevated due to inflation and higher utilization, they are broadly in line with expectations.
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Margin Pulse
Over the past several years, Elevance Health has delivered steady financial growth driven through disciplined execution, strategic acquisitions, and its transition toward an integrated care delivery model. Over the past three years, the company’s revenue has grown at a CAGR of 8.3%, while earnings per share have declined by 1.2%. Despite solid top-line expansion, profitability has been pressured by higher medical and operating costs, regulatory challenges, and contract repricing, all of which have compressed margins.
In the third quarter of 2025, Elevance reported operating revenue of $50.1 billion, a 12% year-over-year increase that surpassed Street expectations.2 Growth was supported by higher premium yields in its Health Benefits segment, contributions from recent acquisitions, and expanding Medicare Advantage membership. However, adjusted operating margin fell to 2.7% from 5.5% a year earlier, largely due to elevated cost trends across its businesses. The benefit expense ratio rose from 89.5% to 91.3%, reflecting higher medical costs – particularly in Medicare – and declining Medicaid membership.3 Adjusted diluted EPS came in at $6.03, down from $8.60 in the prior year but still ahead of estimates, as rising medical costs continued to weigh on profitability.
By segment, Health Benefits generated $42.2 billion in operating revenue, up 10.4% year over year, though its operating gain of $601 million was down from $1.6 billion in the same period last year, reflecting margin pressure from higher medical costs. CarelonRx, Elevance’s specialty pharmacy business, delivered $11 billion in revenue, up 20.3%, while Carelon Services surged 57.9% to $7.3 billion, driven by acquisitions and service expansion.
From a balance sheet perspective, Elevance generated $4.2 billion in operating cash flow year-to-date, slightly lower due to litigation-related payments. The company’s debt-to-equity ratio of 0.73x is slightly higher than that of its peers, reflecting its more active use of debt to finance growth and strategic investments. The company has leveraged its balance sheet to support the expansion of its Carelon health services segment and to advance artificial intelligence and digital initiatives aimed at improving efficiency and care delivery. Despite its relatively higher leverage, Elevance maintains a strong credit profile, holding investment-grade ratings of “A” from S&P, “BBB+” from Fitch, and “Baa2” from Moody’s.
The company reaffirmed its full-year 2025 outlook, maintaining its adjusted EPS target of approximately $27, excluding nonrecurring items. Medicare Advantage margins are expected to improve slightly but remain below the long-term target range of 3% to 5%. Margins in the Affordable Care Act (ACA) individual market are projected to decline at a high single-digit rate year over year, while CarelonRx’s margins are likely to be modestly below guidance due to ongoing investments. In contrast, Carelon Services’ margins are tracking toward the higher end of the company’s target range.
Looking ahead, Elevance expects to provide a specific EPS range in January 2026 and anticipates balanced growth across its major segments resuming in 2027. On the membership front, the company projects a modest decline in Medicaid enrollment in 2026 and potential ACA contraction if federal premium subsidies are not renewed.
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2- Operating revenue comprises total income from its health benefits operations, including premiums from commercial, individual, Medicare, Medicaid, and Federal programs, along with pharmacy and healthcare services revenues.
3- The benefit expense ratio (often called the medical loss ratio in the insurance industry) measures the proportion of premium revenue an insurer spends on paying for medical claims and related healthcare services for its members, relative to the total premiums collected. A higher benefit expense ratio means a larger share of premiums is being used to pay for claims, leaving less for administrative costs, operating expenses, and profit.
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Value Remedy
Elevance Health has a long track record of rewarding shareholders through steady and growing dividends, underpinned by its strong cash flow generation and disciplined capital allocation. The company introduced its dividend policy shortly after going public and has since increased its payout for 14 consecutive years, achieving an average annual growth rate of 10.7% over the past decade. Based on adjusted earnings, Elevance distributes about 22% of its profits to shareholders, balancing returns with reinvestment in the business.
In 2025, Elevance continued its commitment to shareholder returns, declaring a quarterly dividend of $1.71 per share, payable in December. This represents a 5% increase from the prior year’s payout and equates to $6.84 per share on an annualized basis, implying a dividend yield of 1.93% at recent share prices.
Beyond dividends, Elevance also returns capital through share repurchases. In the third quarter alone, the company repurchased 2.9 million shares for $875 million and distributed $381 million in dividends, with $7.2 billion still authorized for future buybacks. Over the past five years, Elevance has reduced its outstanding share count by roughly 12%, which has helped drive EPS growth and enhance long-term shareholder value.
Over the past year, Elevance’s stock has declined roughly 25%, pressured by falling Medicaid membership, rising medical costs, and regulatory uncertainty following cuts to government Medicaid funding. Despite these headwinds, the company’s valuation looks appealing. Shares trade more than 20% below Elevance’s historical averages across key metrics, including non-GAAP trailing and forward P/E and price-to-book ratios – as well as forward EV/EBITDA and price-to-cash-flow multiples. Compared with peers such as UnitedHealth Group and Cigna, Elevance remains moderately valued based on non-GAAP trailing and forward P/E ratios, forward EV/EBITDA, trailing price-to-book, and price-to-cash flow, yet still appears cheaper overall.
The disconnect between performance and valuation presents a potential opportunity for value-focused investors. The company continues to generate strong earnings, robust cash flow, and demonstrate disciplined capital allocation, but these strengths are not yet fully reflected in its stock price. In short, for a value investor, Elevance’s current valuation could represent a chance to buy a high-quality healthcare franchise at a discounted price, with meaningful upside potential once earnings stabilize and investor sentiment improves.
Analysts remain optimistic about Elevance Health’s outlook, citing its strong revenue growth as evidence of effective market penetration and the successful integration of recent acquisitions. These factors continue to reinforce the company’s long-term expansion strategy. The rapid growth of Elevance’s Carelon businesses underscores its successful diversification and expanding suite of healthcare solutions, which enhance its competitive positioning in a dynamic market. At the same time, strategic investments aimed at improving operational efficiency are helping to boost profitability and lay the foundation for sustainable long-term growth.
Wall Street consensus estimates imply a potential upside of about 24% from current levels, with some forecasts projecting gains of more than 36%. A discounted cash flow (DCF) analysis also indicates that the stock could be trading roughly 70% below its estimated intrinsic value, suggesting meaningful long-term upside for investors.
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Investing Takeaway
For value investors, Elevance Health represents a compelling opportunity to acquire a high-quality healthcare franchise at a discount. Despite near-term pressures from rising medical costs, regulatory headwinds, and membership fluctuations in Medicaid and ACA programs, the company continues to generate strong earnings, robust cash flow, and disciplined capital allocation. Its diversified business model, combining health insurance with integrated pharmacy, care, and technology services, provides multiple, stable revenue streams and positions the company for sustainable growth. Strategic acquisitions have strengthened its specialty pharmacy and home-based care capabilities, while ongoing investments in AI and operational efficiency support long-term profitability. With shares trading below historical averages and relative to peers, the current valuation disconnect offers potential upside as market sentiment normalizes and earnings stabilize. Elevance’s combination of resilience, scale, and disciplined execution makes it a standout candidate for investors seeking value in the healthcare sector.
