U.S. health benefits company Elevance Health, Inc. ELV shares have declined 29.6% quarter to date, underperforming its industry and the S&P 500 Index. Closing at $366.48 on Thursday, near its 52-week low of $362.21, the company’s current share price seems an excellent opportunity to build a position in a renowned company. After all, you would much rather buy closer to the low than the high, right?

Elevance Health, headquartered in Indianapolis, IN, has a market capitalization of $84.9 billion. Its peers, UnitedHealth Group Incorporated UNH and The Cigna Group CI, have also declined during the quarter-to-date period, but to a lesser extent than ELV.

ELV Stock vs Industry, S&P 500, UNH & CI

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Weak Analyst Sentiment for ELV

The stock witnessed 10 downward estimate revisions for 2024 earnings in the past 60 days against no movement in the opposite direction. Again, for 2025 earnings, it witnessed 10 downward estimate revisions and only one upward movement during the same period. The Zacks Consensus Estimate for 2024 earnings of $33.20 per share declined 6.7% in the past 60 days. It beat earnings estimates thrice in the past four quarters and missed once, with the average surprise being negative 2.6%.

What’s Dragging Down ELV Stock?

There are multiple factors working here simultaneously. Medicaid membership has declined due to eligibility redeterminations and policy changes across states, leading to a loss of members and associated revenue. At the same time, rising medical costs, driven by seniors resuming elective procedures, are eroding profit margins. Adding to investor concerns, the company recently lowered its full-year 2024 earnings estimates, casting doubt on its future profitability.

Analysts have responded by lowering their target prices, reflecting concerns about the company’s performance potential in the current operating environment. Additionally, President-elect Donald Trump’s criticism of the pharmacy benefit management (PBM) industry, particularly its role in drug pricing, has added to the uncertainty. As a result, companies with significant PBM operations, including Elevance Health, UnitedHealth and Cigna, have seen share prices take a hit.

Wall Street Average Target Price for ELV Suggests an Upside

Based on short-term price targets offered by 18 analysts, the Wall Street average price target is at $507.06 per share, suggesting a 38.44% upside from current levels.

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Long-Term Prospects to Drive ELV Stock

Despite the headwinds, Elevance Health is well-positioned to grow in the long run backed by product expansions, revenue diversification, rate hikes and growth in commercial business. Premium rate increases and optimization of its government business by exiting poor-performing markets, poising it well for growth.

The company is reallocating resources to more profitable areas and making prudent acquisitions. ELV's ROIC of 10.61% is higher than the industry average of 8.47%, which indicates that the company is more efficient in generating returns from its invested capital than the industry.

Its consistent dividend payouts and stock repurchases boost shareholders' value. Elevance Health’s dividend yield of 1.78% is higher than the industry average of 0.97%. ELV bought back shares worth $60 million in the third quarter. It had a leftover capacity of around $3.1 billion under its share buyback authorization as of Sept. 30, 2024. On Oct. 15, 2024, it authorized an increase of $8 billion to its share repurchase program.

ELV Stock: A Value-Driven Choice?

Elevance Health is trading at a discount compared to the industry average. It presents a compelling growth opportunity with its attractive forward 12-month price-to-earnings ratio of 10.39X, lower than its five-year median of 13.46X and the industry average of 13.26X. The company has a Value Score of A.

To Conclude

While Elevance Health and the broader industry are facing weak analyst sentiment, the company’s long-term prospects remain strong. Itremains one of the best-positioned health insurance companies with a favorable valuation to achieve growth in commercial business.

Overall, the outlook is largely neutral for ELV shares. It currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

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