We came across a bullish thesis on Elevance Health, Inc. (NYSE:ELV) on ValueInvestorsClub by rhubarb. In this article, we will summarize the bulls’ thesis on ELV. The company’s shares were trading at $390.73 when this thesis was published, vs. the closing price of $409.46 on Mar 07.

ELV is a health benefits company in the United States that offers a variety of health plans and services to individual, employer group risk-based and fee-based, BlueCard, Medicare, Medicaid, and FEP members.

ELV is positioned to compete at a national level through its partnership with Blues which accounts for a third of the coverage. It is a large-scale player in Medicaid with a market share of 11%. This allows ELV to realize economies of scale and pass the cost savings to its customers. It also provides better negotiating capabilities with clients. This gives ELV a competitive advantage in a market where the profit margins are extremely thin at 2-4%. During Covid, states facilitated enrolment to obtain Federal funds but more than 25 million were disenrolled mostly due to ineligibility. This industry headwind is expected to be temporary, with demand looking to normalize in 2026.

The pricing dynamics have also not been favorable in 2024. Government support in Medicaid is around 75% with Medical Loss Ratio increasing 275 to 300 basis points. This is one of the reasons why the earnings forecast has been revised downward by its peers. With favorable repricing expected till 2027, revenue and profitability should improve from next year onwards.

The street has attached a lower earnings multiple due to setbacks in the industry which are temporary in nature. This has ensured that the price is available at a cheap valuation. Even after a lackluster performance, the P/E based on its trailing 12-month earnings is 16x. With the Medical Loss ratio set to improve and better repricing from states should generate an EPS of $41 in 2026, up from $33 in 2024. Using 2026 estimated earnings, the stock is priced at 10x. Historically, ELV has traded at NTM P/E of 14x and if we use a multiple of 13.5x, the fair price would be $554 which is 35% more than the existing market price.

While we acknowledge the 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 time frame. 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.