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Why Is Elevance Health (ELV) Down 3.2% Since Last Earnings Report?
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It has been about a month since the last earnings report for Elevance Health (ELV - Free Report) . Shares have lost about 3.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Elevance Health due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Elevance Health Tops on Q4 Earnings, Hikes Dividend
Elevance Health reported fourth-quarter 2022 earnings of $5.23 per share, which beat the Zacks Consensus Estimate of $5.20 by 0.6% and our estimate of $5.18. Additionally, the bottom line advanced 1.8% year over year.
ELV’s operating revenues improved 10.1% year over year to $39,667 million in the quarter under review. The top line missed the consensus mark by a whisker but came higher than our estimate of $37,919.9 million.
The quarterly performance benefited on the back of growing premiums stemming from rate increases coupled with membership growth across its Medicaid and Medicare Advantage businesses. Additionally, higher consumers served and increased utilization of prescription drugs, paving way for improved pharmacy product revenues across ELV’s CarelonRx unit, contributed to the upside. However, the upside was partly offset by an elevated expense level.
Quarterly Operational Update
Medical membership of Elevance Health as of Dec 31, 2022, totaled 47.5 million, which rose 4.8% year over year in the fourth quarter and came higher than our estimate of 46.5 million. The improvement came on the back of strong Medicaid and Medicare Advantage businesses. Solid sales to fee-based employers also drove medical membership growth.
The benefit expense ratio of ELV improved 10 basis points (bps) year over year to 89.4%.
Premiums of $33,646 million rose 9.4% year over year in the quarter under review, higher than our estimate of $32,525.4 million. Product revenues climbed 17.4% year over year to $4,137 million.
Net investment income of $373 million grew 6% year over year but lagged our estimate of $398.5 million. The total operating margin improved 10 bps year over year to 3.4% in the fourth quarter.
Total expenses increased 10.2% year over year to $38,775 million due to increased benefit expenses, cost of products sold, and selling, general and administrative (SG&A) expenses. Our estimate indicated total expenses of $36,844.6 million for the fourth quarter.
The SG&A expense ratio was at 11.5%, which improved 20 bps year over year on the back of operating expense leverage linked with growing operating revenues.
Segmental Results
Commercial & Specialty Business
The segment has reported operating revenues of $10,350 million, which advanced 4.5% year over year in the fourth quarter but fell short of our estimate of $10,759.6 million.
Operating gain increased nearly four-fold year over year to $260 million, owing to better medical underwriting performance within its commercial risk-based business and reduced business optimization costs. The operating margin of 2.5% improved 180 bps year over year in the quarter under review.
Government Business
Operating revenues improved 12.5% year over year to $24,646 million, higher than our estimate of $22,816.2 million.
However, the segment’s operating gain of $644 million dropped 13.9% year over year in the fourth quarter due to the non-recurrence of specific favorable out-of-period rate actions in Medicaid in the fourth quarter of 2021. The operating margin deteriorated 80 bps year over year to 2.6%.
CarelonRx
The healthcare services brand Carelon was launched in June 2022 as part of ELV’s rebranding process. The IngenioRx business of ELV has been placed under the CarelonRx unit from January 2023.
Operating revenues of the newly formed segment were $7,523 million, which advanced 10.6% year over year in the fourth quarter.
Operating gain rose 11.2% year over year to $475 million on the back of growing prescription volumes linked with increasing integrated medical and standalone pharmacy members. The segment’s operating margin of 6.3% was flat year over year.
Other
Operating revenues climbed 26.6% year over year to $3,410 million in the quarter under review and beat our estimate of $3,246.3 million.
The segment has reported an operating loss of $11 million, narrower than the prior-year quarter’s loss of $61 million. The improvement came on the back of Carelon’s improved affiliated and unaffiliated earnings.
Segmental Update
Elevance Health will have four reportable segments in 2023 — Health Benefits, CarelonRx, Carelon Services, and Corporate & Other. The Health Benefits segment will be an amalgamation of ELV’s prevailing Commercial & Specialty Business and Government Business. From the current Other segment, the Carelon Services unit has been chalked out. Corporate & Other will consist of businesses that do not individually comply with the quantitative thresholds for an operating unit, as well as those corporate expenses that cannot be distributed to other reportable segments of ELV.
Financial Details (as of Dec 31, 2022)
Elevance Health exited the fourth quarter with cash and cash equivalents of $7,387 million, which jumped 51.4% from the 2021-end level.
Total assets of $102.8 billion increased 5.5% from the figure as of Dec 31, 2021.
Long-term debt, less current portion, was $22,349 million, up 5.6% from the figure at 2021-end. However, the current portion of the long-term debt declined 6.2% from the 2021-end figure to $1,500 million.
Total equity of $36,394 million increased 0.7% from the 2021-end level.
Net cash provided by operating activities for 2022 inched up 0.4% year over year to $8,399 million.
Capital Deployment
Elevance Health bought back shares worth $567 million in the fourth quarter. ELV had $1.9 billion remaining under its share buyback authorization as of Dec 31, 2022. On Jan 24 of this year, management approved a $5-billion increase in its share buyback program.
In the quarter under review, ELV paid out a quarterly dividend of $1.28 per share, adding up to a cash distribution worth $305 million. Its board of directors also announced a 16% hike in its first-quarter 2023 dividend. The increased dividend amounting to $1.48 per share will be paid out on Mar 24, 2023, to shareholders of record as of Mar 10, 2023.
Full-Year Update
For 2022, Elevance Health’s earnings of $29.07 per share improved 11.9% year over year. Operating revenues advanced 13.7% year over year to $156 billion.
Premiums of $133.2 billion grew 13.5% year over year. The total operating margin of 5.4% deteriorated 10 bps year over year.
2023 Outlook
Adjusted earnings are estimated to be more than $32.60 per share, indicating a minimum improvement of 12.1% from the 2022 reported figure.
Management anticipates operating revenues of $164 billion for 2023, suggesting 5.4% growth from the 2022 reported figure. Premium revenues are expected to be $140 billion.
Medical enrollment is projected to be 47.4-48.5 million this year.
Net investment income is forecast to be $1,600 million. Interest expenses are expected to be $1,000 million in 2023, while operating cash flows are likely to be more than $7.6 billion.
Operating margins for the Health Benefits and Carelon Services segments are anticipated to witness an increase of 25-50 bps each from the 2022 reported figures. Meanwhile, the metric for the CarelonRx segment is estimated to be unchanged from the 2022 reported level.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, Elevance Health has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Elevance Health has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Elevance Health (ELV) Down 3.2% Since Last Earnings Report?
It has been about a month since the last earnings report for Elevance Health (ELV - Free Report) . Shares have lost about 3.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Elevance Health due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Elevance Health Tops on Q4 Earnings, Hikes Dividend
Elevance Health reported fourth-quarter 2022 earnings of $5.23 per share, which beat the Zacks Consensus Estimate of $5.20 by 0.6% and our estimate of $5.18. Additionally, the bottom line advanced 1.8% year over year.
ELV’s operating revenues improved 10.1% year over year to $39,667 million in the quarter under review. The top line missed the consensus mark by a whisker but came higher than our estimate of $37,919.9 million.
The quarterly performance benefited on the back of growing premiums stemming from rate increases coupled with membership growth across its Medicaid and Medicare Advantage businesses. Additionally, higher consumers served and increased utilization of prescription drugs, paving way for improved pharmacy product revenues across ELV’s CarelonRx unit, contributed to the upside. However, the upside was partly offset by an elevated expense level.
Quarterly Operational Update
Medical membership of Elevance Health as of Dec 31, 2022, totaled 47.5 million, which rose 4.8% year over year in the fourth quarter and came higher than our estimate of 46.5 million. The improvement came on the back of strong Medicaid and Medicare Advantage businesses. Solid sales to fee-based employers also drove medical membership growth.
The benefit expense ratio of ELV improved 10 basis points (bps) year over year to 89.4%.
Premiums of $33,646 million rose 9.4% year over year in the quarter under review, higher than our estimate of $32,525.4 million. Product revenues climbed 17.4% year over year to $4,137 million.
Net investment income of $373 million grew 6% year over year but lagged our estimate of $398.5 million. The total operating margin improved 10 bps year over year to 3.4% in the fourth quarter.
Total expenses increased 10.2% year over year to $38,775 million due to increased benefit expenses, cost of products sold, and selling, general and administrative (SG&A) expenses. Our estimate indicated total expenses of $36,844.6 million for the fourth quarter.
The SG&A expense ratio was at 11.5%, which improved 20 bps year over year on the back of operating expense leverage linked with growing operating revenues.
Segmental Results
Commercial & Specialty Business
The segment has reported operating revenues of $10,350 million, which advanced 4.5% year over year in the fourth quarter but fell short of our estimate of $10,759.6 million.
Operating gain increased nearly four-fold year over year to $260 million, owing to better medical underwriting performance within its commercial risk-based business and reduced business optimization costs. The operating margin of 2.5% improved 180 bps year over year in the quarter under review.
Government Business
Operating revenues improved 12.5% year over year to $24,646 million, higher than our estimate of $22,816.2 million.
However, the segment’s operating gain of $644 million dropped 13.9% year over year in the fourth quarter due to the non-recurrence of specific favorable out-of-period rate actions in Medicaid in the fourth quarter of 2021. The operating margin deteriorated 80 bps year over year to 2.6%.
CarelonRx
The healthcare services brand Carelon was launched in June 2022 as part of ELV’s rebranding process. The IngenioRx business of ELV has been placed under the CarelonRx unit from January 2023.
Operating revenues of the newly formed segment were $7,523 million, which advanced 10.6% year over year in the fourth quarter.
Operating gain rose 11.2% year over year to $475 million on the back of growing prescription volumes linked with increasing integrated medical and standalone pharmacy members. The segment’s operating margin of 6.3% was flat year over year.
Other
Operating revenues climbed 26.6% year over year to $3,410 million in the quarter under review and beat our estimate of $3,246.3 million.
The segment has reported an operating loss of $11 million, narrower than the prior-year quarter’s loss of $61 million. The improvement came on the back of Carelon’s improved affiliated and unaffiliated earnings.
Segmental Update
Elevance Health will have four reportable segments in 2023 — Health Benefits, CarelonRx, Carelon Services, and Corporate & Other. The Health Benefits segment will be an amalgamation of ELV’s prevailing Commercial & Specialty Business and Government Business. From the current Other segment, the Carelon Services unit has been chalked out. Corporate & Other will consist of businesses that do not individually comply with the quantitative thresholds for an operating unit, as well as those corporate expenses that cannot be distributed to other reportable segments of ELV.
Financial Details (as of Dec 31, 2022)
Elevance Health exited the fourth quarter with cash and cash equivalents of $7,387 million, which jumped 51.4% from the 2021-end level.
Total assets of $102.8 billion increased 5.5% from the figure as of Dec 31, 2021.
Long-term debt, less current portion, was $22,349 million, up 5.6% from the figure at 2021-end. However, the current portion of the long-term debt declined 6.2% from the 2021-end figure to $1,500 million.
Total equity of $36,394 million increased 0.7% from the 2021-end level.
Net cash provided by operating activities for 2022 inched up 0.4% year over year to $8,399 million.
Capital Deployment
Elevance Health bought back shares worth $567 million in the fourth quarter. ELV had $1.9 billion remaining under its share buyback authorization as of Dec 31, 2022. On Jan 24 of this year, management approved a $5-billion increase in its share buyback program.
In the quarter under review, ELV paid out a quarterly dividend of $1.28 per share, adding up to a cash distribution worth $305 million. Its board of directors also announced a 16% hike in its first-quarter 2023 dividend. The increased dividend amounting to $1.48 per share will be paid out on Mar 24, 2023, to shareholders of record as of Mar 10, 2023.
Full-Year Update
For 2022, Elevance Health’s earnings of $29.07 per share improved 11.9% year over year. Operating revenues advanced 13.7% year over year to $156 billion.
Premiums of $133.2 billion grew 13.5% year over year. The total operating margin of 5.4% deteriorated 10 bps year over year.
2023 Outlook
Adjusted earnings are estimated to be more than $32.60 per share, indicating a minimum improvement of 12.1% from the 2022 reported figure.
Management anticipates operating revenues of $164 billion for 2023, suggesting 5.4% growth from the 2022 reported figure. Premium revenues are expected to be $140 billion.
Medical enrollment is projected to be 47.4-48.5 million this year.
Net investment income is forecast to be $1,600 million. Interest expenses are expected to be $1,000 million in 2023, while operating cash flows are likely to be more than $7.6 billion.
Operating margins for the Health Benefits and Carelon Services segments are anticipated to witness an increase of 25-50 bps each from the 2022 reported figures. Meanwhile, the metric for the CarelonRx segment is estimated to be unchanged from the 2022 reported level.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, Elevance Health has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Elevance Health has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.