Is There Value in Elevance Health After Shares Jump 7% on Partnership News?

• Curious whether Elevance Health is trading at a bargain or if you might be overpaying? Let's dig into the numbers to get you the insight you're looking for on where value really lies.
• This month, Elevance Health shares have jumped 7.0% over the past week but are still down 1.2% over the last 30 days and remain off 14.4% compared to a year ago.
• Recent headlines have focused on healthcare sector volatility and changes in policy that could influence managed care organizations like Elevance Health. A number of analysts have also highlighted new partnerships and product launches, which may help rebalance investor sentiment after a rocky start to the year.
• On our most recent valuation audit, Elevance Health scored 5 out of 6 on our valuation checklist, suggesting it passes nearly all our value-focused criteria. Before you make any moves, we will dive into some of the main ways to assess value and reveal an even more powerful approach at the end of this article.

Elevance Health delivered -14.4% returns over the last year. See how this stacks up to the rest of the Healthcare industry.

Approach 1: Elevance Health Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today's value. This approach is especially useful for understanding what a business could be worth based on its actual ability to generate cash over time, rather than just its near-term profits.

For Elevance Health, the latest reported Free Cash Flow stands at $3.58 Billion. Analyst projections suggest that Free Cash Flow could climb significantly, reaching approximately $8.70 Billion by 2029. Although analyst estimates typically look out only five years, further projections for the following period are carefully extrapolated by Simply Wall St to complete the full valuation picture.

Based on this model, Elevance Health's intrinsic value comes out to $1,082 per share. The DCF suggests the stock is 68.7% undervalued compared to where it trades today, which may indicate that the market is missing some of the company's long-term value potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Elevance Health is undervalued by 68.7%. Track this in your watchlist or portfolio, or discover 928 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Elevance Health.

Approach 2: Elevance Health Price vs Earnings

The Price-to-Earnings (PE) ratio is a popular valuation tool for companies that are steadily profitable, like Elevance Health, because it allows investors to relate the company’s share price to its actual earnings. This makes it easier to assess whether the current market price appropriately reflects future growth prospects and associated business risks.

Generally, a higher PE ratio is warranted for companies with strong expected earnings growth or lower risk profiles. A lower PE would be appropriate for slower-growing or riskier firms. Thus, context such as industry trends and financial stability plays a key role in interpreting this multiple.

Currently, Elevance Health trades at a PE ratio of 13.6x, which is well below both its industry average of 22.8x and the average PE of its closest peers at 27.6x. On the surface, this discount might suggest undervaluation, but a single comparison rarely gives the full picture.

This is where the Simply Wall St “Fair Ratio” metric comes in. Based on a proprietary assessment that brings in factors such as Elevance Health’s earnings growth, market cap, profit margins, risk and its industry’s characteristics, the Fair Ratio stands at 32.5x. This tailored benchmark provides a more meaningful baseline than peer or industry averages, as it calibrates for company-specific strengths and risks that are often missed in a simple comparison.

Since Elevance Health’s actual PE multiple is well below its Fair Ratio, this suggests the stock offers compelling value at current levels.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1440 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Elevance Health Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal, dynamic story of a company like Elevance Health, going far beyond just numbers. Instead of relying solely on analyst assumptions or static ratios, a Narrative lets you input your own future revenue, earnings, and margin expectations and link them to a fair value that reflects your unique investment story.

By tying a company’s story, such as its response to industry trends, upcoming product launches, or cost challenges, to your financial forecast and estimated fair value, Narratives offer a much richer investment perspective. They are straightforward to create and use on Simply Wall St’s platform, where millions of investors within the Community page are already comparing and sharing their views.

Narratives help you confidently decide whether to buy, hold, or sell by letting you compare your Fair Value to the current market price. They update automatically as new news or earnings reports are released. For Elevance Health, some users see dramatic upside, expecting profit margins to rebound toward 3.7% and future prices over $500, while others caution that cost pressures could push margins near 2.8%, suggesting fair value might be closer to $297. Narratives let you decide what story and investment fit you best.

Do you think there's more to the story for Elevance Health? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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