Elevance Health faces challenges as revenues decline, triggering stock downgrade

Elevance Health Inc. ELV announced second-quarter revenues of $43.2 billion on Wednesday, showing a slight decrease of 0.4% compared to the previous year. The result was marginally above the expected consensus of $43.05 billion. This decline was attributed to a decrease in Medicaid membership, which was somewhat mitigated by higher premium yields linked to the medical cost trend. The company reported increasing pressure on Medicaid in partnership with UnitedHealth Group Inc., sparking uncertainty about future Medicaid margins and potential recovery. Observations also revealed that Centene Inc., Cigna Corp, and Molina Healthcare Inc. are trading at significantly lower valuations than Elevance Health, affecting its potential for further growth.

Following the analysis conducted by BofA Securities, Elevance Health has been downgraded from Buy to Neutral, with its price target lowered from $646 to $530. The rationale for this downgrade was based on concerns about potential insufficient rates to cover a deteriorating risk pool, especially with the acceleration of underlying utilization and Medicaid volume. The analyst noted that these factors could continue to pressure the company into 2025, despite efforts to revert to previous margins. ELV stock responded to this update by falling 2.7% to $506.85 on Thursday. This news highlights the challenges faced by Elevance Health due to the shifting dynamics within the healthcare industry, particularly in relation to Medicaid services and valuations compared to its peers.