Stock Breakdown: Elevance Health (Ticker: ELV)
In my Brief Breakdowns,I pick a stock and present opposite sides – I present the bullish argument and the bearish argument.
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Company Description and Qualitative Analysis
Elevance Health Inc. is a health benefits company that offers health benefits to consumers, families, and communities. It serves approximately 118 million people through its portfolio of medical, digital, pharmacy, behavioral, clinical, and care solutions. Elevance Health is one of the largest health insurance providers with a huge client portfolio, with room to grow. Health insurance is a necessity in the United States and continues to grow. As Elevance continues to grow, the workforce continues to increase, and more people require health insurance, ELV is primed to continue to grow and increase its client base.
Quantitative Analysis
At the time of this writing (10/3/2022), ELV is trading at $454.24 with a market cap of $109.02B and a 52-week range of $363.68 - $533.68. In Q2 of 2022, ELV’s GAAP net income was $6.79 per share including a net negative adjustment items of $1.25 per share. Operating revenue grew 15.6% over the prior year to $38.5 billion, operating gain grew 13.7%, and medical enrollment increased 2.7 million members YoY and 276 thousand members during the quarter to 47.1 million members. The price to earnings ratio (P/E) is 18.2, the net margin is 4.09%, and the debt to equities ratio is 1.82. The return of equities was 17.0% and the dividend yield is 1.09%. You can view ELV’s 2022 Q2 earnings here and their 2021 Annual Report here.
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Bullish Thesis
Here are three points to support the bullish thesis:
Client base: Health insurance is a very sticky business where clients generally do not change their provider unless there is a major change in price or through switching employers. Companies generally have contracts with the health insurance companies which keeps the retention of the client base very high and that client base keeps growing. Being a trusted name in the health insurance
Market Share: Currently, Elevance Health has 12% of the market share followed by Aetna at 11% and Cigna at 10%. United Health care is also the biggest player in the space, but there is room to grow and grasp market share. There is an opportunity to grow and expand for Elevance Health because it currently only has health insurance products, while the biggest player UnitedHealth has areas for treatment as well.
Organic Growth: Elevance Health has not been growing due to an increase in marketing but an increase in organic growth in Medicaid due to suspension of eligibility recertification, higher BlueCard activity and the acquisition of Integra Managed Care, which added 43 thousand members. The ability to grow organically is a huge positive and hopefully this trend continues in order to continue growth and limit marketing expenses.
Bearish Thesis
Here are three points to support the bearish thesis:
Limited to Health Insurance: Elevance Health’s biggest competitor is UnitedHealth and currently Elevance Health is limited to just health insurance. United Health has a leg up with the diversification of products and services while ELV is a one-trick pony. Although it is a solid business, the addition of other silos in order to create revenue would be beneficial for growth and maintain a moat with their client base.
Management of Health Care Costs: There has been drastic rise in healthcare costs recently and the management of this will continue to be at the forefront of the Elevance Health. This management will be crucial in order to retain the client base which has been one of the advantages of the healthcare industry. If Elevance is successful it could prove to be a benefit as other companies potentially struggle with this aspect.
No more pandemic boom: Continued issues from the COVID-19 pandemic are going to linger on in the healthcare industry. Increases in healthcare costs due to larger increase of healthcare facilities and more of a need for health related products and services. As this need decreases as we get farther from the COVID-19 pandemic the need for these services will decrease and thus the increase in price won’t be as justified.
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Brandon
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Disclosure: The article was written by Brandon Keys, and it expresses the author's own opinions. I am not receiving compensation for it. I have no business relationships with any company whose stock is mentioned in this article. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Brandon is not a financial advisor. I encourage all readers to do further research and do your own due diligence before making any investments.