Elevance Health

After several years of elevated utilization that has not been fully offset by rate increases yet, covered MCO shares have risen about 35% on average since our last managed care industry report in September 2025, in anticipation of rising profits in at-risk medical insurance plans.

Why it matters: While trading much closer to fair value than they were about a year ago, the managed care organizations we cover still look moderately undervalued to fairly valued to us, with plenty of upside in their earnings growth prospects for the foreseeable future relative to norms. On average through 2030, we expect covered MCOs to grow earnings per share in the midteens compounded annually versus the typical industry goal of low-double-digit growth. This accelerated earnings growth looks likely due to potential margin improvement in at-risk plans—including Medicare Advantage (seniors), the individual exchanges, and Medicaid (low-income)—as the MCOs raise rates, adjust plan designs, and exit unprofitable geographies.

The bottom line: We continue to see reasonably valued to moderately undervalued shares in the managed care industry, even when considering their High to Very High Uncertainty Ratings, which remain about a notch above historical ratings due primarily to elevated regulatory uncertainty. New policy changes are threatening the individual exchange (2026) and Medicaid (2027) businesses. The market appears to be discounting companies with significant exposure to these businesses—like Centene, Elevance, and Molina—relative to their intrinsic value, which is creating an opportunity for long-term investors, in our view. Regulatory actions related to Medicare Advantage and vertical integration in the industry also remain possible. Cigna, CVS, Humana, and UnitedHealth appear most exposed and could eventually face potential fines and even forced separations in some scenarios.

BLANK PAGEFor more details on how each MCO stacks up against its peers, along with the industry's growth prospects, moat ratings, moat sources, and regulatory concerns, please see our September 2026 Industry Landscape on managed care organizations.

Our fair value estimate for narrow-moat Elevance stands at $474 per share.

Including a weak 2026-27, we assume Elevance's revenue will rise about 4% and adjusted earnings per share will grow 8% compounded annually through 2030, including share repurchases. That projection assumes a slight contraction in medical membership during the next five years, primarily due to Medicaid and individual exchange membership contracting in 2026-27 under recently enacted legislation targeting lower federal spending in those programs. Beyond that, though, we assume top- and bottom-line growth accelerates, as the firm returns to revenue growth closer to mid-single-digit healthcare spending patterns plus mild benefits from market share increases related to its competitive advantages as a top-tier insurer. Additionally, the company appears focused on increasing its operating margins. Specifically, we expect the firm's adjusted operating margin to continue contracting slightly but staying close to 4% in 2026 before rising over time to the low end of the firm's goal of 5%-6%. Investors should know that it may take a multiyear effort to reach that level due to many challenges, but in the long run, we assume margins will eventually rise as elevated medical utilization is better reflected in rates. We even expect EPS growth to return to the low double digits starting in 2027, or to be similar to management's long-term goal of 12% compounded annually, albeit from a weak base after several years of declining earnings. In total, our fair value estimate depends on Elevance growing revenue 5% and adjusted EPS 9% compounded annually through 2035, including about 300 basis points of benefits from projected share repurchases.

We see some risks to our fair value estimate, though. While we assume that Medicaid operating margins return to roughly 2% norms over time, there is a chance that margins do not improve to that level. In a scenario where Elevance's Medicaid margins look likely to only return to breakeven levels for the long run, we would reduce our fair value estimate by a low-double-digit percentage of intrinsic value. More broadly, if the company's total operating margins merely stay at 2026 trough levels around 4% indefinitely, our fair value estimate would fall roughly 30% to about $330 per share with no other changes to our assumptions. We suspect those assumptions are too pessimistic, though.

Elevance Health earns a narrow moat rating from us, which is fundamentally anchored by its competitive advantages in medical insurance. Elevance's strategy centers on emphasizing its strengths in the 14 states where it licenses the Blue Cross Blue Shield brand name. In those states, Elevance provides insurance to about one in every three people, which gives it scale-related cost advantages and network effects in those local markets. Those advantages have helped Elevance generate economic profits over capital costs historically, and we expect that to continue over the long run, although that profitability faces pressures in the near term.

We continue to see two primary moat sources—cost advantage and network effects—at top-tier insurer Elevance.

Elevance's Cost Advantage Relates to Local Market Leadership

Elevance’s cost advantages relate primarily to scale in its local markets, highlighted by its US medical membership nearly matching industry leader UnitedHealth with a limited geographic footprint. Elevance operates with a number-one or -two membership position in all 14 states where it operates under the Blue Cross Blue Shield license. In the states in which it operates, Elevance provides insurance to about one in every three people, which gives it significant local scale-related cost advantages. This sort of local scale advantage allows for much greater negotiating leverage versus other healthcare suppliers, particularly local service providers, than smaller insurers in each market. That scale-related leverage over service providers typically allows Elevance to offer significantly lower healthcare costs or more benefits per member to its clients than the average US health insurer and even its top-tier, narrow moat peers.

Network Effects Appear to Cement Elevance in Local Leadership Positions, Too

Where local scale advantages are significant enough, we think Elevance’s insurance operations benefit from a network effect, too, which has been a general trend in the US market in recent years. In our managed care coverage, the top-seven insurers in the US have grown their membership share by about 100 basis points annually during the past decade. We see evidence of network effects in communities where Elevance already has substantial market share. For example, it can offer lower priced products or more benefits per member to existing and potential clients than its peers. Considering those attractive plans, typically more clients and end users are attracted to Elevance’s insurance plans in those communities, and local service providers, such as hospitals and physician groups, have more incentive to join its provider network and offer lower prices to Elevance’s insurance networks to gain access to its large and growing membership base. As Elevance’s local market share rises, its negotiating leverage with healthcare suppliers also rises, which can create a virtuous cycle where Elevance attracts even more clients and more providers to its insurance network. Overall, we think these dynamics create barriers to entry for new competitors in local markets, entrenching incumbent insurers like Elevance in leadership positions in these markets.

Regulatory Concerns: Elevance Faces Primarily Medicaid and PBM Risks, Although New Medicare Sanctions Could Hurt, Too

Our narrow moat rating is informed by an analysis of potential changes to the US healthcare system, which is the key long-term environmental, social, and governance risk that Elevance faces, in our opinion. During the next 10 years, we view scenarios in which Elevance provides medical and pharmaceutical benefits through employers and even government programs as much more likely than other scenarios. However, the federal government is implementing new regulations to cut spending on some of Elevance’s key end markets—Medicaid and individual plans. Also, one of its emerging businesses—pharmacy benefit management—faces questions around transparency and vertical integration with medical insurance. Moves to significantly change the integration of these businesses could create some synergy risks for Elevance.

Medicare Advantage also remains under scrutiny broadly for the industry and specifically at Elevance. Elevance does not face a lot of exposure to that end market, which means we think any broad industry actions would be easily manageable. However, recent moves to sanction Elevance for the inappropriate submission of risk assessment data could have a material impact on Elevance, if sanctions on new membership enrollment become permanent in 2027 and beyond.

Elevance continues to use its scale-related advantages for the benefit of clients, and we remain intrigued by its ongoing efforts to align incentives with caregivers, including the deployment of high performance provider networks.

The company's Carelon services platform, which includes its PBM, should support material savings for clients, higher profitability for Elevance, and overall growth with cross-selling opportunities.

Management aims for relatively high annualized earnings growth of at least 12% in the long run.

The insurance and PBM industries will likely remain targets of regulators aiming to reduce the healthcare cost burden on society, which is its key ESG risk, in our opinion.

A mismatch in rates and medical utilization is constraining profits in throughout the MCO industry and has weakened Elevance's near-term outlook.

The bulk of insurance membership growth in the long run may stem from lower-margin government-sponsored plans, creating a structural headwind to insurer profitability.