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Elevance Health: Choose Predic – GuruFocus.com

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Over the past year, the S&P 500 index has lost almost 18%. Each sector, save energy, is lower over this period of time. No sector, however, fared worse than the health care sector, which lost 58.6%.

That said, some names in this sector have performed very well. One such name is Elevance Health Inc. (ELV, Financial), formerly known as Anthem Inc.

Elevance Health is a leading provider of healthcare benefits and has over 47 million members under its plans. These plans are provided through channels such as individual, commercial, Medicaid, and Medicare plans. More than half of annual sales come from government sources, with businesses accounting for a third and individuals the rest.

Last year, the stock price had a wide range, with the stock reaching a high of $533.68 and a low of $370. Shares of the $112 billion company have returned nearly 24% over the past 12 months and are nearly 11% off the 52-week high.

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Constant improvement of the fundamentals

Elevance Health released its latest quarterly results on June 28. Second-quarter revenue rose nearly 16% to $38.5 billion, beating Wall Street analysts’ expectations of $430 million. Adjusted earnings per share of $8.04 were higher than the $7.03 the company generated a year earlier and 30 cents better than expected.

The company recorded gains in almost all areas of its business. Total premiums increased 16% to $33.1 billion, while product revenue increased 17% to $3.6 billion. Breaking down the results further, Government Business revenue increased nearly 19%, IngenioRx increased 13.7%, and Commercial & Specialty increased 10.6%.

Total membership grew just over 6% to 47.1 million, with Government Business up 11% and Commercial & Specialty Business up 3.8%.

Elevance provided revised guidance for 2022, with executives now expecting adjusted earnings per share of at least $28.70, up from the previous guidance of $28.40. If achieved, that would represent a 10.5% improvement over 2021. That’s not too far off the company’s 13.7% compound annual growth rate over the past decade, according to Value Line.

The strengthening results probably come as no surprise to those who follow the company, as revenue and bottom line growth has increased over the past 15 years, which is why Elevance Health received five stars. out of five for its predictability ranking.

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Elevance Health’s balance sheet at the end of the quarter was in good shape with total assets of $100.9 billion, total current assets of $53.7 billion and cash and cash equivalents of $6.5 billion. of dollars. This compares to total liabilities of $65 billion, total current liabilities of $39.3 billion, long-term debt of $21.2 billion, and short-term debt of $2.2 billion. of dollars.

Dividend analysis

Elevance Health has increased its dividend for 12 consecutive years. Over the past decade, the dividend has recorded a CAGR of 16.4%, just ahead of earnings growth.

The stock has rarely been a high yielding name.

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This trend is confirmed today, since the action yields 1.1%. This is lower than the five-year average return of 1.3%, but the difference is likely due to the 144% gain Elevance Health has seen over this period; a solid compromise as far as investors are concerned.

The good news for shareholders is that the dividend is likely safe. The company is expected to pay out $5.12 of earnings per share in 2022, which equates to a projected payout ratio of 18% using management guidance for the year. That’s just below the average payout ratio of 20% since 2012.

Valuation analysis

Elevance Health is currently trading at $470.56, giving the stock a forward price-to-earnings ratio of 16.4 based on guidance for the year. This compares to the 10-year average price-to-earnings ratio of 13.5, which makes the stock slightly overvalued on a historical basis.

However, the GF value line suggests that the stock is correctly valued based on historical ratios, past financial performance and analysts’ future earnings projections.

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Elevance Health has a GF value of $461.58, which gives a GF price/value ratio of 1.02. This implies that the stock is overvalued by 2% even after its recent outperformance. Stocks get a fair value rating from GuruFocus.

The company has a strong GF score of 88 out of 100, implying that it has good performance potential going forward.

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Growth is Elevance Health’s top score, where the company earns a perfect 10 out of 10, driven by revenue and earnings growth rates that outpace the majority of companies in the healthcare plan industry. It should be noted that there are only 15 companies in this industry, but Elevance Health still outperforms the majority on most metrics.

One area where the company has intermediate expectations is in future revenue and earnings growth rates. Morningstar Inc. (MORNING, Financial analysts predict revenue and earnings growth of 11.5% and 6.7%, respectively, over the next three to five years. This remains within normal long-term ranges for the company, although projected growth rates are in the middle of peers.

Elevance Health has a strong rating in profitability, where it scores 9 out of 10. This score is determined by return on equity and return on assets which grow and exceed nearly two-thirds of its peers. On the other hand, net margin is down from previous years, but still one of the company’s best performers over the past decade.

Financial strength is rated 5 out of 10, primarily due to growth in long-term debt over the past 10 years. Despite this, interest coverage is manageable and at the best level in the last decade for the company. Elevance Health also has a Piotrsoki F score of 8 out of 9, suggesting that the financial situation is very sound. Finally, the return on investment of capital of 8.9% compared to its weighted average cost of capital of 7.5% indicates that the company generates value from its investments in its activity.

Final Thoughts

Elevance Health has easily outpaced its own sector and the S&P 500 over the past year. This happened because the company experienced healthy growth in both revenue and earnings per share, a trend that has continued over the long term. As a result, Elevance Health has a perfect five-star rating for predictability.

Although the stock yield is low, the growth rate has been in the mid-teens since 2012, and the payout rate is extremely low. Stocks are trading above their average historical multiple, but are fairly valued on an intrinsic basis. The GF score also indicates good performance in the coming years.

Investors looking for a high-performing healthcare name still trading at a reasonable valuation may find Elevance Health an attractive investment option given its predictability over the past 10-15 years.