Elevance Looks Cheap Now: But is it Time to Buy or Dodge?
Elevance Health, Inc. ELV, a leading U.S. health benefits provider, appears to be trading at a discount. Its forward 12-month P/E ratio stands at just 10.35X, significantly below its five-year median of 13.46X and the industry average of 13.86X. Compared to peers, UnitedHealth Group Incorporated UNH and Humana Inc. HUM, which trade at 12.06X and 14.73X, respectively, ELV looks attractively valued. It currently holds a Zacks Value Score of A, highlighting strong valuation fundamentals.
But is this discount a sign of hidden opportunity, or a red flag? Let's explore the drivers behind Elevance's valuation and its long-term outlook.
Tailwinds Fueling Elevance's Growth
Headquartered in Indianapolis, Elevance is well-positioned for sustained growth, underpinned by strategic initiatives across its commercial and government segments. Elevance continues to see steady growth in its commercial segment. In 2024, risk-based and fee-based commercial memberships grew 4.6% and 1% year-over-year. Its Individual Commercial business is especially strong, reporting a 14.2% surge in the first quarter of 2025 alone.
By exiting underperforming markets, Elevance has streamlined its government business, improving overall efficiency. It also has room to expand its Medicare Advantage footprint in underpenetrated states, which could unlock future growth.Vision and dental memberships continue to witness growing momentum.
With a Return on Invested Capital of 9.94%, far above the industry average of 5.79%, Elevance demonstrates superior capital deployment. Its $84.1 billion market cap gives it the scale to pursue strategic acquisitions and reallocations toward higher-margin businesses.
ELV remains committed to returning capital to shareholders. In the first quarter of 2025 alone, it repurchased $880 million worth of shares and had $8.4 billion remaining under its buyback authorization. Its dividend yield of 1.82% also exceeds the industry average of 1.40%.
Stable Market Performance Amid Volatility
Despite headwinds in the broader market, ELV shares have gained 1.9% year to date, outperforming both the industry and the S&P 500. In contrast, UnitedHealth and Humana have posted declines, reflecting broader sectoral pressure.
Price Performance – ELV, Industry, S&P 500, UNH & HUM
ELV's Estimates & Surprise History
The Zacks Consensus Estimate for Elevance's 2025 and 2026 EPS implies a 4.2% and 13.8% uptick, respectively, on a year-over-year basis. The estimates remained stable over the past week. Moreover, the consensus mark for 2025 and 2026 revenues suggests an 11.2% and 7.1% increase, respectively.
The company beat earnings estimates in three of the past four quarters and missed once. This is depicted in the figure below.
Elevance Health, Inc. Price and EPS Surprise
ELV's Risks & Headwinds to Watch
Despite its strengths, Elevance faces some notable challenges. A key concern is the decline in Medicaid and Medicare Supplement membership, leading to both overall membership losses and reduced revenues. A drop in government funding could put additional pressure on profitability.
Increasing medical costs pose a massive challenge as industry players continue to struggle with rising utilization and squeezing margins. The company's benefit expense ratio, measuring the portion of premiums spent on claims, has been increasing, rising from 87% in 2023 to 88.5% in 2024. Our estimate suggests it could reach 88.7% in 2025, signaling further pressure on earnings.
Policy shifts such as the Most Favored Nation drug pricing model introduced by the Trump administration have rattled the Pharmacy Benefit Management (PBM) industry. With major PBM exposure, Elevance — like UnitedHealth, CVS and others — faces uncertainty in this space.
Conclusion
Elevance Health offers an appealing valuation and demonstrates strong fundamentals in its commercial business, capital efficiency and shareholder returns. However, ongoing pressures from rising medical costs, government program headwinds, and regulatory uncertainties temper the bullish case.
With a Zacks Rank #3 (Hold), the stock reflects a balanced risk-reward profile. It may not be a screaming buy at the moment, but it remains a solid name to watch, especially for long-term investors seeking stability, value and consistent execution in the healthcare space. Patience may be warranted until clearer signals on regulatory outcomes emerge.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
Humana Inc. (HUM): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
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