We came across a bullish thesis on Elevance Health, Inc. (NYSE:ELV) on Substack by Waterboy Investing. In this article, we will summarize the bulls’ thesis on ELV. Elevance Health, Inc. (NYSE:ELV)'s share was trading at $383.24 as of Jan 9^th. ELV’s trailing and forward P/E were 13.95 and 10.98 respectively according to Yahoo Finance.

Elevance Health Inc., priced at $383.31 with a market cap of $89 billion and enterprise value of $108 billion, stands as the second-largest commercial healthcare insurer in the U.S., serving 46 million members and employing 100,000 people. Operating as an independent Blue Cross Blue Shield licensee in 14 states, Elevance provides managed care plans across commercial, individual, Medicaid, and Medicare markets. Its diversified offerings include CarelonRx, a pharmacy benefit manager, and Carelon Services, which delivers advanced analytics, behavioral health services, and care delivery solutions.

Elevance generated $170 billion in revenue and $9 billion in operating income in 2023, with its Health Benefits segment contributing $149 billion in revenue and $7 billion in income. CarelonRx and Carelon Services added $34 billion and $14 billion in revenue, respectively. Over the past decade, the company has achieved remarkable growth, with revenue, earnings, and dividends expanding at compound annual growth rates (CAGR) of 9.88%, 13.95%, and 12.96%, respectively. Despite its recent 30% valuation haircut due to Medicaid cost challenges, Elevance's historical trading multiple of 15x earnings contrasts sharply with its current trailing multiple of 11.5x, suggesting a compelling value opportunity.

Elevance's scale and market dominance underpin its competitive advantage, bolstered by regulatory complexities that restrict competition in its licensed territories. It commands significant market share, including 67% in Kentucky and 56% in Indiana. Replicating its business would be nearly impossible, given its entrenched position and $45 billion in equity capital. Healthcare remains a necessity, with limited viable substitutes, making Elevance's services indispensable despite systemic inefficiencies in the broader healthcare ecosystem.

The company boasts robust cash flow and disciplined capital allocation. Between 2019 and 2023, Elevance generated $41.5 billion in operating cash flow, deploying $44.7 billion across marketable securities, share repurchases, acquisitions, capital expenditures, and dividends. Its balance sheet reflects prudent financial management, with $7.8 billion in cash, $29 billion in fixed-maturity securities, and $25 billion in long-term debt, supported by an 8.6x interest coverage ratio.

Elevance's shareholder-friendly policies are exemplified by its 53.6% share count reduction since 2008, effectively doubling ownership stakes. Notably, Glenn Greenberg’s Brave Warrior fund holds a significant stake, underscoring institutional confidence. With a 10% free cash flow yield and moderate growth prospects, Elevance offers a potentially lucrative investment, aligning with Greenberg’s framework for achieving superior long-term returns.

Elevance Health, Inc. (NYSE:ELV) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 67 hedge fund portfolios held ELV at the end of the third quarter which was 73 in the previous quarter. While we acknowledge the risk and potential of ELV as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ELV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.