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Elevance Health Just Took Its Medicine—And It Tastes Like $30 EPS
Doctor’s Orders: Lower Your Expectations
Elevance Health (NYSE: ELV) just dropped a prescription for the market, and it reads:
“Reduced EPS. Take with a glass of Carelon and some Medicaid rate alignment. Side effects may include analyst skepticism, flat stock movement, and heavy sighing.”
After previously guiding for 2025 adjusted EPS in the mid-$34 range, ELV revised expectations down to ~$30/share.
That’s not just a trim. That’s a buzz cut.
What Happened?
Two main culprits:
- ACA (Obamacare) plans are getting hit with higher-than-expected medical utilization and morbidity.
- Medicaid is suffering from slow reimbursement updates post-pandemic and a messier-than-expected redetermination cycle.
Translation?
Sicker people. More services. Less payment.
It’s sort of like running a restaurant where everyone orders filet mignon and pays for a side salad.
The Numbers (The Good, The Bad, and the Really Expensive)
- Q2 EPS (adjusted): $8.84 (not bad!)
- Revenue: $49.4B (+14% YoY, mostly thanks to acquisitions and premium hikes)
- Benefit Expense Ratio: 88.9% (oof—up 260bps YoY)
- Medical membership: 45.6M (down ~200K from Q1, mostly Medicaid churn)
Carelon Rx and Carelon Services did show strength, with 20%+ and 50%+ revenue growth, respectively. But let’s not kid ourselves—that’s like finding a twenty-dollar bill while your wallet is on fire.
Analyst Mood: “So… Is There More Bad News Coming?”
Wall Street came loaded with questions:
- “Is the ACA trend temporary?”
- “How long before Medicaid margins recover?”
- “Can we believe $30 is the floor, or is this just halftime?”
CEO Gail Boudreaux played it straight:
“We’re not assuming a near-term recovery. We’re acting now.”
Respect the honesty, but this isn’t what you say when your margins are thriving.
What Elevance Is Doing About It
- Expanding value-based care (1/3 of benefit expense now in downside risk deals)
- Deploying AI tools to catch fraud, improve coding, and streamline authorizations
- Leaning hard into Carelon, their growth engine in pharmacy and tech-enabled services
- Lawyering up for “inappropriate use” of the No Surprises Act (their words, not mine)
Basically: trim fat, fix risk pools, and stop letting providers run wild with billing codes.
What It Means for Investors
The 2025 EPS haircut puts Elevance right in line with UnitedHealth’s recent cautionary tone. But here’s the kicker:
- ELV now trades at ~14x revised earnings
- Still generates ~$6B+ in annual cash flow
- Continues to return billions to shareholders
This is not a broken business. It’s a profitable behemoth rebalancing mid-stride in a turbulent reimbursement environment.
But don’t expect fireworks until Medicaid realigns and ACA pool acuity stops climbing.
Final Diagnosis
Elevance Health’s Q2 wasn’t a disaster—but it was definitely a wake-up call.
Yes, they’re still a cash machine. Yes, they’re investing in smart things. But right now?
This is a story of margin repair, not margin expansion.
If you’re an investor, don’t hit the panic button—but maybe hide it under some prior authorization paperwork.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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