Elevance Health has had an impressive run over the past six months as its shares have beaten the S&P 500 by 6.8%. The stock now trades at $395.55, marking a 13.5% gain. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is ELV a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does Elevance Health Spark Debate?
Formerly known as Anthem until its 2022 rebranding, Elevance Health (NYSE: ELV) is one of America's largest health insurers, serving approximately 47 million medical members through its network-based managed care plans.
Two Things to Like:
1. Economies of Scale Give It Negotiating Leverage with Suppliers
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $198.3 billion in revenue over the past 12 months, Elevance Health is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.
2. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Elevance Health’s five-year average ROIC was 26.5%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
One Reason to Be Careful:
Declining Customer Base Reflects Product and Sales Weakness
Revenue growth can be broken down into the number of customers and the average spend per customer. Both are important because an increasing customer base leads to more upselling opportunities while the revenue per customer shows how successful a company was in executing its upselling strategy.
Elevance Health’s total customers came in at 45.42 million in the latest quarter, and over the last two years, their count averaged 1.1% year-on-year declines. This performance was underwhelming and shows the company lost deals and renewals. It also suggests there may be increasing competition or market saturation. 
Final Judgment
Elevance Health’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 14.8× forward P/E (or $395.55 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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