Aging Trends And Digital Integration Will Expand Managed Care Markets

Key Takeaways

• Value-based care and AI-driven efficiencies are improving cost predictability and margins, positioning Elevance for durable, above-peer earnings growth.
  
• Expanding Carelon and government segment revenues diversify growth, with disciplined capital allocation enhancing long-term returns and shareholder value.
  
• Persistently high medical costs, regulatory pressures, and reliance on government programs threaten Elevance Health's margins, earnings stability, and revenue predictability despite investments in technology and integration.

Catalysts

Operates as a health benefits company in the United States.

• Analysts broadly agree that Elevance's expansion of value-based care can improve margins and member outcomes, but stronger-than-expected adoption-particularly as over one-third of benefit expense now falls under downside risk-could drive a significant step-change in cost predictability and accelerate net margin expansion in both core and external client segments.
  
• Analyst consensus sees Carelon as a scalable external growth engine, but its rapid 50%+ revenue growth and integration of CareBridge indicate that non-member and high-acuity population revenues could become a much larger share of total revenue than currently modeled, boosting long-term earnings power and revenue diversification.
  
• Burgeoning demand driven by the aging U.S. population and rising chronic disease prevalence means Elevance's government businesses (Medicare Advantage, Medicaid) have a structurally expanding addressable market, positioning the company for above-peer, recurring revenue growth as its brand and integrated offerings support higher retention and deeper market penetration.
  
• Elevance's sustained investment in AI and data analytics-already streamlining prior authorization, billing integrity, and fraud prevention-could lead to a permanent reduction of administrative costs and faster medical cost containment than peers, resulting in a durable uplift to operating margins and cash flow.
  
• The company's balance sheet strength and capital allocation discipline, combined with opportunistic buybacks at current valuations and more selective M&A focused on integration, make a significant step-up in earnings per share growth likely as operational leverage and future capital deployment outpace market expectations.

Elevance Health Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Elevance Health compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Elevance Health's revenue will grow by 7.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.8% today to 3.6% in 3 years time.
• The bullish analysts expect earnings to reach $8.4 billion (and earnings per share of $37.23) by about September 2028, up from $5.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, up from 13.2x today. This future PE is lower than the current PE for the US Healthcare industry at 21.0x.
• Analysts expect the number of shares outstanding to decline by 2.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Elevance Health Future Earnings Per Share Growth

Risks

• Ongoing elevated medical cost trends in ACA and Medicaid, driven by heightened morbidity following pandemic-related redeterminations and increased utilization-especially in emergency room visits and specialty pharmacy-are persisting and may continue to outstrip premium adjustments, pressuring net margins and long-term EPS growth.
  
• Growing reliance on government programs makes Elevance Health vulnerable to policy changes, rate cuts, and evolving eligibility requirements-such as enhanced Medicaid work requirements and potential ACA subsidy expirations-which may lead to unpredictable revenue streams and prolonged margin recovery periods.
  
• Increased scrutiny over healthcare costs and regulatory focus on transparency and affordability could translate into tighter price controls or caps on premium increases, directly impacting Elevance Health's ability to grow revenue and defend profitability.
  
• The rising negotiating power of consolidated healthcare providers and the proliferation of risk-based contracts and value-based arrangements may lead to upward pressure on claims costs and create EPS volatility should the company be unable to effectively manage medical cost trends relative to premium growth.
  
• Significant investments in technology, data analytics, and integration of recently acquired assets, while necessary for future competitiveness, may temporarily elevate capital expenditures and operating costs, constraining free cash flow and depresssing near-term earnings if revenue growth does not offset these outlays.

Valuation

• The assumed bullish price target for Elevance Health is $495.7, which represents two standard deviations above the consensus price target of $370.44. This valuation is based on what can be assumed as the expectations of Elevance Health's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $507.0, and the most bearish reporting a price target of just $297.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $234.6 billion, earnings will come to $8.4 billion, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 6.8%.
• Given the current share price of $315.09, the bullish analyst price target of $495.7 is 36.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.