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Accelerated margin expansion across Medicaid and Medicare Advantage, coupled with high-margin external Carelon service wins, enabling Elevance to exceed its 12% EPS growth target and push operating margins toward 4.5%.
Medical cost trend inflation outstripping state Medicaid rate updates and commercial price resets.
Elevance Health is rated Hold with Fair value of $474.64, representing 9.3% implied upside from $434.13 (as of 2026-10-21). Disciplined commercial pricing resets and accelerating Carelon fee-based growth support solid multi-year earnings power, but valuation offers a balanced risk/reward that warrants holding existing positions rather than committing fresh capital.
Elevance delivered solid third quarter 2026 operating results that demonstrated resilient execution across its diversified portfolio. Operating revenue reached $50.4 billion (up 0.7% YoY), while adjusted diluted earnings per share expanded 15.9% YoY to $6.99. Management raised its full-year 2026 adjusted diluted EPS guidance to at least $29.00 and increased full-year operating cash flow guidance to at least $6.5 billion. Operating cash flow generation rebounded strongly to $7.5 billion through the first nine months of 2026, reversing working capital headwinds from 2025.
Underwriting margin recovery is underway but progresses unevenly across lines of business. In Medicaid, state rate updates implemented on July 1st delivered sequential margin improvements, although underlying medical cost trends remain elevated. In Commercial Group, disciplined low-double-digit pricing actions are holding performance in line with management's plan. Simultaneously, Carelon expanded operating gain by 17% YoY in Q3, with CarelonRx maintaining a healthy 5.3% operating margin, proving the structural benefits of integrated medical and pharmacy execution.5
With the stock trading at $434.13, shares offer an 8.53% discount to our Fair Value midpoint of $474.64 (9.33% implied upside). While management's outlook for at least 12% adjusted EPS growth in fiscal 2027 provides constructive fundamental visibility, the current return hurdle does not meet our required threshold to initiate new capital. We maintain our Hold rating and advise investors to preserve existing holdings while tracking quarterly underwriting margin recovery.5
CarelonRx and Carelon Services delivered $19.3B in revenue and 17% operating gain growth in Q3 2026, generating high-margin fee income with low capital requirements.5
Anthem Blue Cross Blue Shield market dominance across 14 states drove jumbo employer account wins and supported 1.3M ACA enrollment, demonstrating superior brand retention.
Management raised FY2026 operating cash flow guidance to at least $6.5B, backing a secure $6.88 annualized dividend and $5.0B in remaining share repurchase authority.
Hold. Elevance is fundamentally sound with clear margin recovery initiatives and strong Carelon execution, but the 9.33% upside to our $474.64 Fair Value does not warrant fresh capital deployment under house discipline.
Elevance Health, Inc. (NYSE: ELV) is a leading American health benefits company and lifetime health partner supporting approximately 103 million consumers across its diverse medical, clinical, pharmacy, and complex care platforms. The company operates through four reportable segments: Health Benefits, CarelonRx, Carelon Services, and Corporate & Other. Health Benefits delivers commercial, individual, Medicare, Medicaid, and Federal Employee Program health coverage, holding exclusive Blue Cross Blue Shield licenses across 14 states.
Carelon encompasses Elevance's non-regulated healthcare services, providing pharmacy benefit management, dispensing assets, behavioral healthcare, oncology solutions, and home-based care coordination to captive health plans and external third-party payers. For the full year 2025, Elevance generated $199.1 billion in operating revenue, $7.2 billion in operating income, and $5.7 billion in , serving 44.9 million medical members.
Our stress test evaluates an adverse 12-to-24 month underwriting stagflation scenario where medical loss ratios remain elevated above 91.0%, Medicaid redetermination rate catch-ups lag into fiscal 2027, and commercial group medical cost inflation stays in the low double digits. In this scenario, consolidated operating margin remains suppressed below 2.5%, preventing normalization toward the 4.2% house target. The compounding effect of historical CMS risk adjustment data liabilities ($935M pre-tax charge in 9M 2026) and membership attrition to national peers UNH and CI would compress operating earnings growth to 3%-5%, testing debt service coverage and constraining share repurchase capacity.
Elevance Health possesses a Narrow economic moat grounded in structural cost advantages from local market scale, exclusive Blue Cross Blue Shield (BCBS) brand licensing in 14 states, and expanding fee-based healthcare services via Carelon. In managed care, scale is fundamentally local: health plans with dominant regional market share negotiate superior unit-cost discounts with hospitals and physician networks, directly lowering the underlying cost of care and creating a durable pricing advantage over smaller competitors.
In addition to scale-based provider cost advantages, Elevance benefits from meaningful switching costs in its Commercial Fee-Based (27.6M members) and Employer Group books. Replacing an established managed care administrator disrupts employee doctor relationships, requires extensive IT and benefits re-enrollment, and exposes corporate sponsors to network friction. The return of several jumbo accounts to Anthem after a single year with a competitor highlights the operational moat protecting Elevance's employer franchise.
The rapid development of Carelon (CarelonRx and Carelon Services) strengthens the moat by integrating clinical, behavioral, and pharmacy services into risk-bearing and administrative plans. Carelon delivered $19.3B in operating revenue and $0.9B in operating gain in Q3 2026 (up 17% YoY), achieving a 5.3% margin in CarelonRx. This vertical integration retains profit internally, reduces medical cost trend, and captures external selling opportunities with third-party payers.
The highlighted cell is Fair value when every assumption sits at its base level ($474.64). Each row and column shows what Fair value becomes when one assumption moves.
A free-cash-flow drop test is not available in this run; use the discount-rate and terminal-growth grid as the primary valuation pressure test.
A material beat confirms that commercial low-double-digit pricing and state Medicaid rate updates are restoring health plan underwriting profitability ahead of the multi-year normalization trajectory.
The managed care sector exhibits low capital asset intensity, reflected in industry capex-to-revenue of 0.9% and capex-to-depreciation of 0.81. Elevance generated 2025 operating cash flow of $4,290M with capital expenditures of $1,116M. The capital cycle is currently at a margin trough following post-pandemic Medicaid redeterminations and utilization spikes, with operators now raising commercial premium rates and renegotiating government contracts to restore capital generation.6
A favorable underwriting cycle phase characterized by disciplined industry pricing, state Medicaid rate increases exceeding medical cost trends, moderating outpatient utilization, and expanding margins in Medicare Advantage toward the 3%-5% long-term target.
Under our Hold recommendation, implied upside of 9.3% from $434.13 to Fair value of $474.64 offers positive return potential but does not provide sufficient margin of safety to warrant initiating a fresh position or adding capital. Existing holders should maintain moderate exposure while monitoring quarterly margin execution.
Manage managed care portfolio risk by limiting individual issuer exposure to 3.5% of total portfolio capital. Monitor regulatory exposure including CMS risk adjustment data audits ($935M accrual) and maintain strict adherence to checkpoint thresholds.
Trading at 13.68x forward earnings with an 8.53% discount to Fair Value of $474.64, Elevance offers modest upside, but current prices lack the 15%+ margin of safety required for fresh buying.4
Management's guidance of at least 12% adjusted EPS growth in FY2027 is attractive, but execution on Medicaid rate recoveries and commercial cost inflation must be confirmed before adding to positions.5
A secure dividend yielding ~1.6% ($6.88 annualized, $1.72 quarterly) backed by $6.5B+ in operating cash flow supports existing holdings, but total return upside is constrained near term.
Elevance Health is rated Hold with Fair value of $474.64, offering 9.3% implied upside from $434.13 (as of 2026-10-21).
While third-quarter results demonstrated robust operational execution—prompting management to raise full-year earnings guidance and target double-digit earnings growth for FY2027 —the implied upside of 9.3% does not provide sufficient margin of safety to initiate fresh positions. Investors should maintain existing holdings and await further evidence of Medicaid margin normalization.
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The records this analysis drew on, as they stood when it was run.
Medical cost trends in Commercial and Medicaid remain persistently elevated, while state Medicaid rate updates lag acuity increases into 2027. Competitive pressure from UNH and CI accelerates commercial membership attrition, while regulatory audits and Star Rating cuts constrain Medicare Advantage profitability, trapping operating margins below 3.0% and causing valuation multiple contraction toward peer levels.
In Q3 2026, operating margin fell to 2.5% while Health Benefits segment operating margin compressed to 1.0%. If low double-digit commercial utilization continues and state Medicaid rate updates fail to catch up, margins will remain stuck below 2.5% rather than normalizing to 4.2%.5
Elevance currently trades at 13.68x forward P/E, while peer CI trades at 9.09x and CVS trades at 10.95x. A 20% de-rating towards peers would compress the multiple to 10.8x under prolonged medical loss ratio pressure.34
Total medical membership dropped by 487,000 YoY to 44.882M with MA down 15.5% and Medicaid down 4.9%, while FY2026 revenue is projected to contract -0.78%. A 500 bps drag on 5-year revenue growth reflects continuing enrollment attrition to peers UNH and CI.15
Computed moderate Ke is 8.4449%, with normalized cycle Ke at 8.8124%. A 100 bps discount rate expansion to 9.44% captures regulatory risk adjustment audits ($935M accrual) and heightened healthcare policy uncertainty.25
The five developments that would weaken our investment case.
Operating margin fails to rebound toward the 4.0% normalization path due to persistent medical utilization and state Medicaid rate update delays.
Current:2.5% (Q3 2026)
Alert if< 2.5%
Severe jumbo employer defections to competitors such as UNH or CI impairing commercial underwriting pricing power.
Current:-5.2% YoY (Q3 2026 at 4.714M)
Alert if> 3.0% annual commercial attrition
PBM pricing pressure, dispensing volume deceleration, or regulatory pharmacy spread compression eroding fee-based earnings diversification.
Current:5.3% (Q3 2026)
Alert if< 4.0%
Runaway inpatient, surgical, and specialty drug utilization outpacing annual premium rate resets across Commercial and Medicaid pools.
Current:90.6% (Q3 2026)
Alert if> 91.5%
Aggressive claims reserve drawdowns signaling reserve inadequacy and prospective prior-period claims development headwinds.
Current:44.9 days (Q3 2026)
Alert if< 40.0 days
The moat remains Narrow rather than Wide due to substantial regulatory dependence and customer concentration in government programs. With 8.2M Medicaid members and 2.8M Medicare members, Elevance is vulnerable to state rate lag, CMS Star Rating adjustments, and regulatory audits ($935M historical risk adjustment accrual in 2026). Furthermore, national competitors UNH and CI aggressively contest jumbo employer accounts, capping excess returns.
Elevance generated 2025 operating income of $7,199M and net income of $5,662M. Its economic return on invested capital comfortably exceeds its weighted average cost of capital of 7.5543% and moderate cost of equity of 8.4449%. Structural cost advantages from Blue Cross Blue Shield contracting and high-margin Carelon services ensure that normalized operating margins of 3.7% to 4.2% will generate positive economic profit throughout the underwriting cycle.26
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
Project SBC-adjusted EPS, discount each year's earnings at cost of equity, then add a Gordon-growth terminal value.
Under the moderate discount rate, $108 comes from forecast-period earnings and $460 from the long-term value, totaling $567.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
Solve for the growth rate that makes the model value equal the report-date share price.
Medicare Advantage underwriting margins accelerate toward management target ranges ahead of schedule, supported by Star Rating recoveries and favorable claims development. Carelon secures major third-party external selling wins, expanding service operating margins substantially. Consolidated operating margins expand meaningfully, driving accelerated annual adjusted earnings growth with valuation multiple expansion.5
Elevance executes disciplined commercial pricing resets matching low-double-digit cost inflation while state Medicaid rate adjustments gradually restore underwriting margins. Carelon continues steady 5% revenue expansion with 5.3% pharmacy operating margins. Consolidated operating margins normalize from 3.6% in 2025 to 4.2% by 2030, supporting our fair value midpoint of $474.64 (+9.33% implied upside).5
Inline results validate our baseline assumption of gradual operating margin normalization to 4.2% by 2030, keeping implied upside at 9.33% and supporting the Hold stance.
A miss indicates that medical utilization inflation has overrun pricing resets and Carelon fee growth cannot offset health plan underwriting compression.
Third quarter 2026 GAAP diluted EPS of $6.27 and adjusted diluted EPS of $6.99 reflected strong underlying operating execution alongside a net non-operating benefit of $1.85 per share. Non-GAAP adjustments included $0.19 per share in transaction/integration costs, $0.08 in business optimization charges, and $0.04 in litigation expenses, while the nine-month period absorbed a $4.28 per share ($935M pre-tax) accrual for historical CMS risk adjustment data. Operating cash flow of $1.3B in Q3 and $7.5B through 9M 2026 confirms strong cash conversion and high earnings quality.5
Estimate momentum is positive following the Q3 2026 earnings release, where management raised full-year adjusted EPS guidance to at least $29.00. Analyst consensus FY2026 EPS rose to $27.24-$27.53, and FY2027 consensus EPS reached $29.73, supported by management's target of at least 12% adjusted EPS growth in fiscal 2027.15
Medicaid margin normalization toward the 2%-4% target range is critical to overall underwriting recovery following post-pandemic redeterminations.5
Confirms non-regulated pharmacy execution and validates fee diversification away from pure risk underwriting.5
Ensures proactive premium rate resets absorb inpatient surgical, specialty drug, and independent dispute resolution inflation.5
Management guided full-year 2026 Medicare Advantage margins of at least 2% on path to the 3%-5% target.
Guarantees claims reserve sufficiency and prevents adverse prior-period claims development from eroding future earnings.
| $138.64B |
| $156.60B |
| $171.34B |
| $177.01B |
| $199.13B |
| +9.5% |
| Gross profit | $35.99B | $39.95B | $47.01B | $49.24B | $50.90B | +9.1% |
| Operating income | $7.56B | $8.28B | $8.50B | $7.86B | $7.20B | -1.2% |
| Net income | $6.16B | $5.89B | $5.99B | $5.98B | $5.66B | -2.1% |
| EPS (diluted) | $24.95 | $24.28 | $25.22 | $25.68 | $25.21 | +0.3% |
| EBITDA | $10.03B | $10.13B | $10.49B | $10.48B | $9.66B | -0.9% |
| R&D | — | — | — | — | — | — |
| SG&A | $15.92B | $17.70B | $20.09B | $20.03B | $20.98B | +7.2% |
Operating cash flow compressed to $4,290M in 2025, yielding free cash flow of $3,174M against net income of $5,662M due to medical claims payable dynamics and redetermination working capital adjustments. However, 9M 2026 operating cash flow surged to $7,512M (up from $4,206M in 9M 2025), driven by favorable working capital and a 3.5-day increase in Days in Claims Payable to 44.9 days. Management raised full-year 2026 operating cash flow guidance to at least $6.5 billion, confirming that cash conversion has fully normalized.5
Elevance pursues a disciplined capital allocation strategy focused on organic capability enhancement, targeted M&A, and returning excess capital to shareholders. Capital expenditures remain modest at $1,116M in 2025 and $789M through 9M 2026, primarily supporting digital and clinical infrastructure. Through 9M 2026, the company repurchased $1,688M of common stock (including 0.8M shares in Q3 for $330M) and distributed $1,122M in cash dividends ($1.72 per share quarterly). Elevance maintains $5.0B in remaining share repurchase authorization. Total debt stood at $30,757M against $10,348M in cash and cash equivalents as of September 30, 2026, representing comfortable leverage.
Elevance has maintained stable economic returns despite underwriting margin compression from 4.96% in 2023 to 3.62% in 2025. Management guidance of full-year 2026 adjusted EPS of at least $29.00 and FY2027 adjusted EPS of $29.73 confirms return on invested capital will remain resilient.
Elevance's effective return on capital comfortably exceeds its weighted average cost of capital of 7.5543% and moderate cost of equity of 8.4449%, demonstrating sustained value creation through the underwriting cycle.
Commercial risk-based membership fell 5.2% YoY in Q3 2026 to 4.714M, but Commercial operating revenue rose 3.8% to $13,343M as pricing caught up to low-double-digit cost trends.
Underwriting profitability takes precedence over membership volume, establishing the foundation for operating margin expansion from 3.7% in 2026 to 4.2% by 2030.
Carelon segment operating revenue grew 5% YoY in Q3 2026 to $19.3B, while operating gain surged 17% to $0.9B with CarelonRx margin reaching 5.3%.
Fee-based services provide capital-light profit growth that buffers consolidated earnings against medical benefit expense ratio spikes.
Nine-month operating cash flow reached $7,512M in 2026 compared to $4,206M in the prior-year period, prompting management to raise FY2026 guidance to at least $6.5B.
Rebounding cash flow supports steady debt reduction and share repurchases under the $5.0B remaining board authorization.
| Revenue | $199,125,000,000 |
|---|---|
| Cost of revenue | $148,223,000,000 |
| Gross profit | $50,902,000,000 |
| Operating expenses | $43,703,000,000 |
| Operating income | $7,199,000,000 |
| Non-operating items and tax | -$1,537,000,000 |
| Net income | $5,662,000,000 |
| Total assets | $121,494,000,000 |
|---|---|
| Cash | $9,491,000,000 |
| Current assets | $63,001,000,000 |
| Total liabilities | $77,468,000,000 |
| Current liabilities | $41,035,000,000 |
| Shareholders’ equity | $44,026,000,000 |
| Net income | $5,662,000,000 |
|---|---|
| Operating inflow | $7,484,000,000 |
| Depreciation and amortization | $1,546,000,000 |
| Stock-based compensation | $276,000,000 |
| Operating cash flow | $4,290,000,000 |
| Operating outflow | $3,194,000,000 |
| Cash available | $12,578,000,000 |
| Beginning cash | $8,288,000,000 |
| Investing outflow | $1,344,000,000 |
| Capex | $1,116,000,000 |
| Other investing activities | $228,000,000 |
| Financing outflow | $1,738,000,000 |
| Exchange-rate effect | $5,000,000 |
| Ending cash | $9,491,000,000 |
| Investing cash flow | -$1,344,000,000 |
| Financing cash flow | -$1,738,000,000 |
Point-in-time financial data used in the 2026-10-22 analysis.
| Period | Revenue | EBITDA | Net income | Operating cash flow | Free cash flow | Capex | Depreciation and amortization | Stock-based compensation | Share repurchases | Dividends paid | Net debt issuance | Investing cash flow | Financing cash flow | Beginning cash | Ending cash | Cash and investments | Total debt | Operating margin | ROIC | WACC | ROIC − WACC spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016-12-31 | $84.9B | $6.2B | $2.5B | $3.3B | $2.7B | $584M | $912M | $165M | $0 | $684M | — | -$514M | -$799M | — | $4.1B | $21.3B | $15.3B | 5.7% | — | 4.3% | — |
| 2017-12-31 | $90B | $5.6B | $3.8B | $4.2B | $3.4B | $791M | $891M | $170M | $2B | $705M | — | -$5.1B | $427M | $4.1B | $3.6B | $21B | $18.7B | 4.6% | — | 5.0% | — |
| 2018-12-31 | $92.1B | $7B | $3.8B | $3.8B | $2.6B | $1.2B | $1.1B | $226M | $1.7B | $776M | — | -$1.3B | -$2.2B | $3.6B | $3.9B | $20.6B | $18.1B | 5.9% | — | 5.3% | — |
| 2019-12-31 | $104.2B | $7.9B | $4.8B | $6.1B | $5B | $1.1B | $1.1B | $294M | $1.7B | $818M | — | -$2.8B | -$2.3B | $3.9B | $4.9B | $24.6B | $19.4B | 5.8% | — | 4.7% | — |
| 2020-12-31 | $121.9B | $8.2B | $4.6B | $10.7B | $9.7B | $1B | $1.2B | $283M | $2.7B | $954M | — | -$7.3B | -$2.6B | $4.9B | $5.7B | $29.2B | $20B | 5.2% | — | 4.3% | — |
| 2021-12-31 | $138.6B | $10B | $6.2B | $8.4B | $7.3B | $1.1B | $1.3B | $255M | $1.9B | $1.1B | — | -$9.6B | $423M | $5.7B | $4.9B | $31.1B | $22.8B | 5.5% | — | 5.1% | — |
| 2022-12-31 | $156.6B | $10.1B | $5.9B | $8.4B | $7.2B | $1.2B | $1.7B | $264M | $2.3B | $1.2B | $1.8B | -$4.6B | -$1.3B | $4.9B | $7.4B | $33.3B | $23.8B | 5.3% | — | 7.0% | — |
| 2023-12-31 | $171.3B | $10.5B | $6B | $8.1B | $6.8B | $1.3B | $1.7B | $289M | $2.7B | $1.4B | $662M | -$5.6B | -$3.3B | $7.4B | $6.5B | $36.1B | $24.9B | 5.0% | — | 6.8% | — |
| 2024-12-31 | $177B | $10.5B | $6B | $5.8B | $4.6B | $1.3B | $1.4B | $191M | $2.9B | $1.5B | $5.5B | -$5.2B | $1.2B | $6.5B | $8.3B | $33.5B | $30.9B | 4.4% | — | 7.0% | — |
| 2025-12-31 | $199.1B | $9.7B | $5.7B | $4.3B | $3.2B | $1.1B | $1.5B | $276M | $2.6B | $1.5B | $2.3B | -$1.3B | -$1.7B | $8.3B | $9.5B | $35.4B | $31.9B | 3.6% | — | 5.5% | — |
Elevance Health Inc. (ELV) trades at 13.7x forward earnings against a peer median of 14.4x. Its EV/EBITDA of 10.6x compares with a peer median of 11.3x. The comparison uses 4 peers: The Cigna Group, CVS Health Corporation, Humana Inc. and UnitedHealth Group Incorporated, as of 2026-10-22.
Elevance occupies a strong defensive position within the commercial group and Medicaid landscapes due to its local Blue Cross Blue Shield market share. By scaling Carelon to $19.3 billion in Q3 2026 revenue with 4.7% operating margins, Elevance diversifies away from pure underwriting risk faster than government-heavy peers like Humana (HUM), though it remains more exposed to state Medicaid rate resets than diversified peer Cigna (CI).3
| Initial discount tier below $434.13 | Initial Accumulation Tranche | Represents a ~15-18% discount to Fair Value of $474.64, near the Q3 repurchase price of $398.75, providing an adequate margin of safety. |
| Secondary accumulation tier below $434.13 | Full Target Weight Allocation | Aligns with conservative underwriting valuation scenarios to provide an enhanced margin of safety before reaching full position allocation. |
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
| CVS Health Corporation |
| $119.5B |
| 10.9x |
| 0.3x |
| 10.9x |
| 6.2% |
| 3.9% |
| HUM | Humana Inc. | $51.1B | 24.9x | 0.4x | 11.7x | 6.9% | 3.5% |
| UNH | UnitedHealth Group Incorporated | $374.3B | 17.9x | 0.8x | 14.6x | 15.8% | 5.8% |
