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Is This "Strong Buy" Health Insurance Company a Bargain?

Healthcare company Elevance Health (ELV) reported solid revenue growth in the last reported quarter. While the stock trades at a discount to its peers, analysts expect the company’s financials to improve. So, let’s evaluate if it would be wise to buy the stock now. Read on...

Elevance Health Inc. (ELV) is a health benefits company. It assists consumers, families, and communities along the care journey by linking them to the care, support, and resources they need to live healthy lives. It provides medical, digital, pharmaceutical, behavioral, clinical, and care solutions to about 118 million people.

Originally known as Anthem, Inc. (ANTM), the firm changed its name to Elevance Health Inc. in June 2022.

In terms of forward Non-GAAP P/E, the stock is currently trading at 16.97x, 12.6% lower than the industry average of 19.43x. Also, its forward EV/Sales of 0.88x is 75.9% lower than the industry average of 3.67x. Moreover, ELV's forward Price/Sales of 0.76x is 82.9% lower than the industry average of 4.47x.

The stock has gained 26.6% over the past year and 29.2% over the past nine months to close its last trading session at $485.98. The company is well-positioned to gain in the ever-evolving healthcare industry through its various strategic operational advancements.

Here's what could shape ELV's performance in the near term:

Strategic Acquisition

In May, ELV (formerly known as Anthem Inc.) announced the completion of its acquisition of Integra Managed Care, a New York-based Managed Long-Term Care Plan that assists persons with long-term care requirements and disabilities in living securely and independently in their own homes.

“We’re pleased to complete this acquisition and work alongside our new colleagues as we continue to grow our Medicaid business and enhance the healthcare experience for all of our members,” said Felicia Norwood, Executive Vice President of Anthem’s Government Business Division.

Robust Financials

During the first quarter ended March 31, 2022, ELV's total revenue increased 17.6% year-over-year to $38.09 billion. The company's net income grew 7.7% from the year-ago value to $1.79 billion, while its EPS amounted to $244.4.

Its cash and cash equivalents came in at $6.16 billion, representing an increase of 26.3% for the three months ended March 31, 2022.

Impressive Growth Prospects

Street expects ELV's revenues and EPS to rise 12.3% and 10.2% year-over-year to $153.78 billion and $28.64, respectively, in fiscal 2022. In addition, ELV's EPS is expected to rise at a 12.6% CAGR over the next five years.

Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Upside

Of the 20 Wall Street analysts that rated ELV, 16 rated it Buy, and four rated it Hold. The 12-month median price target of $568.40 indicates a 16.9% potential upside. The price targets range from a low of $335.00 to a high of $642.00.

POWR Ratings Reflect Solid Prospects

ELV has an overall grade of A, equating to a Strong Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ELV has a B grade for Quality, Growth, and Value. ELV's solid earnings and revenue growth potential is consistent with the Quality and Growth grade. In addition, the company's lower-than-industry multiples are in sync with the Value grade.

Of the 11 stocks in the A-rated Medical – Health Insurance industry, ELV is ranked #1.

Beyond what I stated above, we have graded ELV for Sentiment, Stability, and Momentum. Get all ELV ratings here.

Bottom Line

ELV has gained 29.3% over the past month. Its impressive growth attributes and continued effort to boost its operational capabilities should enable it to witness robust growth in the near term. In addition, as the stock is currently trading at a significant discount to its peers, we think it could be wise to scoop up its shares now.

How Does Elevance Health Inc. (ELV) Stack Up Against its Peers?

ELV has an overall POWR Rating of A, which equates to a Strong Buy rating.  Check out these other stocks within the same industry with A (Strong Buy) ratings: Cigma Corp. (CI), UnitedHealth Group Inc. (UNH), and Centene Corp. (CNC).

CI shares were trading at $260.88 per share on Tuesday afternoon, down $7.15 (-2.67%). Year-to-date, CI has gained 14.64%, versus a -20.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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