Given the persistent elevated medical cost trends observed across the Managed Care sector in late 2025, how does Elevance Health's (ELV) 2026 Benefit Expense Ratio (BER) guidance account for potential utilization volatility in the Medicare Advantage and Individual Exchange segments?

Elevance Health (ELV) has established its 2026 Benefit Expense Ratio (BER) guidance at 90.2% , with a sensitivity range of +/- 50 basis points. This outlook reflects a strategic pivot toward margin preservation over membership volume, specifically designed to buffer against the persistent medical cost trends and utilization volatility observed in late 2025. Executive Overview of 2026 Guidance Framework The 2026 guidance is characterized by management as a "repositioning year," setting a trough for earnings power before an anticipated return to 12% adjusted EPS growth in 2027. The BER guidance of 90.2% is a slight increase from the 90.0% reported for FY 2025, signaling that while Elevance is pricing for elevated costs, it does not expect a significant near-term reversion to historical utilization levels. Adjusted EPS Floor: At least $25.50 , down from $30.29 in 2025. Revenue Outlook: Low single-digit decline, driven by a low double-digit contraction in risk-based membership. Operating Cash Flow: Projected at least $5.5B , reflecting a normalization of Medicaid payment timings. Medicare Advantage (MA): Margin Prioritization and Portfolio Rationalization Elevance’s strategy for the 2026 MA segment involves a deliberate reduction in footprint to mitigate the impact of inadequate federal reimbursement rates and rising senior utilization. Membership Contraction: ELV anticipates a high-teens percentage decline in MA membership (approximately -18% or 400,000 members). This is a result of exiting markets where long-term economics were deemed unsustainable. Margin Target: By shedding lower-margin or high-utilization "at-risk" members, the company aims to improve its Medicare operating margin to at least 2.0% in 2026. Part D Exit: The full exit from standalone Medicare Part D plans further reduces exposure to the heightened seasonality and pharmacy cost volatility introduced by the Inflation Reduction Act (IRA) changes. Individual Exchange: Accounting for Morbidity Shifts The Individual Exchange (ACA) segment faces unique volatility due to the expiration of enhanced premium subsidies at the end of 2025. Elevance’s 2026 BER guidance accounts for this through aggressive pricing and actuarial adjustments. Pricing Discipline: The company secured a composite ACA rate increase of approximately 20% for the 2026 plan year. Adverse Selection Buffer: The guidance assumes a "sicker" remaining risk pool (higher morbidity) as healthier, subsidy-sensitive individuals are expected to lapse coverage. Membership Outlook: Year-end 2026 membership is guided to at least 900,000, reflecting a disciplined approach to retention that prioritizes members who meet the new pricing thresholds. Transmission Mechanisms for Volatility Mitigation Elevance has integrated several "diagnostic cushions" into its 2026 financial architecture to handle potential utilization spikes: 1. Guidance Range Sensitivity: The +/- 50 bps range on the BER provides a $1.0B+ pre-tax earnings buffer, allowing for moderate deviations in inpatient or outpatient utilization without breaching the floor of the EPS guidance. 2. Conservative Reserve Setting: Management indicated that 2026 assumptions do not rely on "utilization relief," instead pricing for the "new normal" of elevated behavioral health and specialty drug demand seen in Q4 2025. 3. Medicaid "Trough" Accounting: While Medicaid margins are projected at a negative -1.75% , the guidance assumes continued rate-acuity misalignment, effectively "de-risking" the outlook by not banking on immediate state-level rate corrections. Key Risks and Uncertainties Regulatory Lag: If state Medicaid rate adjustments continue to lag behind the actual acuity of the remaining population, the Health Benefits segment margin could face further compression. Election-Year Policy Shifts: Potential changes in federal healthcare policy or further extensions of subsidies could disrupt the current morbidity assumptions for the Individual segment. Utilization Elasticity: There remains a risk that the 20% rate increases in the Individual segment could trigger higher-than-expected "churn," leaving an even more concentrated high-cost population than currently modeled.

With the post-pandemic Medicaid redetermination cycle largely concluded, what specific margin recovery targets has Elevance Health (ELV) established for its Government Business division for the 2026 fiscal year, and how do these align with recent state-level contract renewals?

Elevance Health (ELV) has designated the 2026 fiscal year as a "trough year" for its Government Business division, specifically within its Medicaid operations. Following the conclusion of the post-pandemic redetermination cycle, the company has shifted its strategy to prioritize margin recovery and pricing discipline over membership volume. 2026 Margin Recovery Targets Elevance Health has established specific, bifurcated margin targets for its Government Business (reported under the Health Benefits segment) as it navigates the "mismatch" between state reimbursement rates and member medical acuity. Medicaid Operating Margin: Management has set a target of approximately -1.75% for FY 2026. This represents the anticipated "low point" for the segment, following a projected -0.5% margin in 2025. The company expects a return to its long-term sustainable target of 2% to 4% beginning in 2027. Medicare Advantage (MA) Margin: Elevance is targeting a "meaningful step up" to at least 2% in 2026. This recovery is driven by deliberate portfolio exits from underperforming counties and a focus on higher-margin HMO and Dual-Eligible Special Needs Plans (D-SNPs). Enterprise Long-Term Target: The company maintains an enterprise-wide operating margin target of 5% to 6% , with the Health Benefits segment expected to contribute mid-single-digit margins once normalization is achieved post-2026. Alignment with State-Level Contract Renewals The 2026 financial outlook is heavily influenced by a "mixed" landscape of state-level Medicaid contract outcomes, which has led to a projected loss of approximately 750,000 Medicaid members (a 9% year-over-year decline). Strategic Wins (Florida & Kansas): Elevance successfully secured a six-year contract renewal in Florida (via Simply Healthcare Plans), retaining its presence in all regions. In Kansas, the company won a new contract (Healthy Blue), displacing a major competitor. These wins support the "core" footprint management intends to stabilize. Significant Losses (Georgia): A major headwind for the 2026 outlook is the loss of the Georgia Medicaid contract (Amerigroup), which previously covered roughly 30% of the state's Medicaid population. This loss contributes to the projected membership attrition and the "trough" earnings profile for the year. Rate Realignment: Management is currently negotiating with states for composite rate increases in the mid-single-digit percentage range for 2026. These renewals are being structured to better align with the higher acuity of the remaining "post-redetermination" member pool, which is currently utilizing services (particularly behavioral health and specialty pharmacy) at elevated levels. Operational and Financial Guidance for 2026 To achieve these targets, Elevance is implementing "prudent" guidance that accounts for continued pressure in the safety-net insurance sector. Adjusted EPS Floor: The company has established a 2026 adjusted diluted EPS target of at least $25.50 . This is a deliberate reset from the $30.29 reported in 2025, which was bolstered by $3.75 per share in non-recurring favorable items. Membership Contraction: Beyond Medicaid, Medicare Advantage membership is expected to decline in the high teens percentage range as Elevance prioritizes "margin over membership" in its 2026 bids. Strategic Investments: The company plans to invest "several hundred million dollars" into Carelon (its health services arm) and AI-driven operational efficiencies to offset the temporary margin compression in the Government Business division.

In light of the intensified federal regulatory scrutiny on Pharmacy Benefit Managers (PBMs) in early 2026, what is the projected impact on Elevance Health's (ELV) CarelonRx earnings, and to what extent is the company pivoting toward fee-based service models to mitigate legislative risk?

The federal regulatory landscape for Pharmacy Benefit Managers (PBMs) in early 2026 has reached a critical inflection point following the enactment of the Consolidated Appropriations Act, 2026 (2026 CAA) and the One Big Beautiful Bill Act (OBBBA). For Elevance Health (ELV), these legislative shifts coincide with a "year of execution and repositioning," as the company navigates significant margin compression in its government-sponsored business while accelerating the transformation of its CarelonRx segment. Regulatory Landscape & PBM Reform Context The early 2026 regulatory environment is defined by three primary federal pillars that directly challenge traditional PBM profit centers: Consolidated Appropriations Act, 2026 (2026 CAA): Signed into law on February 3, 2026, this legislation mandates 100% pass-through of rebates to plan sponsors in the commercial market by 2028. Crucially, it "delinks" PBM compensation from drug list prices in Medicare Part D, forcing a shift toward flat, "bona fide service fees." One Big Beautiful Bill Act (OBBBA): This broader fiscal package includes a federal ban on PBM spread pricing effective January 1, 2027, and introduces more frequent Medicaid eligibility redeterminations, which has accelerated membership attrition. TrumpRx Platform: Launched in January 2026, this direct-to-consumer platform leverages "Most Favored Nation" (MFN) pricing, potentially allowing patients to bypass traditional PBM-negotiated formularies for high-cost specialty drugs like GLP-1s. Projected Impact on CarelonRx Earnings Elevance Health’s 2026 guidance reflects a "trough year" as the company recalibrates to these new federal mandates. While CarelonRx remains a core growth engine, its near-term earnings trajectory is moderated by broader enterprise membership shifts. Revenue Outlook: CarelonRx is projected to deliver low single-digit growth in 2026, a significant deceleration from the 33% revenue surge seen in 2025 (which reached $71.7B for the total Carelon segment). Margin Compression: Management has set a 2026 operating margin target for CarelonRx of 5.6% , representing a decline of up to 25 basis points compared to 2025 levels. EPS Reset: The company issued a conservative 2026 Adjusted EPS guidance of at least $25.50 , down from $30.29 in 2025. While much of this decline is attributed to the expiration of $3.75 per share in non-recurring tax benefits, it also accounts for the "low point" in Medicaid margins and the impact of PBM transparency requirements. Strategic Pivot Toward Fee-Based Service Models To mitigate legislative risk—specifically the "delinking" of rebates and the ban on spread pricing—Elevance Health is aggressively shifting CarelonRx toward a transparent, fee-based service model. Fee-Based Membership Growth: ELV expects fee-based membership to reach between 27.2M and 27.5M in 2026. This model prioritizes administrative fees over volatile spread-based income, aligning the company with the 2026 CAA’s "bona fide service fee" requirements. Carelon Services Expansion: The company is diversifying away from pure PBM risk by scaling Carelon Services, which focuses on high-margin, value-based care in behavioral health and home-based services. Acquisitions like CareBridge and Paragon Healthcare are central to this pivot, as these services are less susceptible to PBM-specific federal scrutiny. External Client Diversification: Carelon is increasingly targeting external (non-Anthem) payers to reduce its dependence on internal membership, which is currently facing a low double-digit decline in risk-based enrollment due to Medicaid redeterminations and Medicare Advantage portfolio pruning. Risks & Forward-Looking Considerations The primary risk to CarelonRx's 2026 performance is the "Acuity Mismatch" in Medicaid. As healthier members lose coverage under OBBBA's stricter eligibility rules, the remaining pool is sicker, driving up medical costs faster than state reimbursement rates can adjust. Furthermore, the TrumpRx platform's $245/month cap on GLP-1 medications may disrupt CarelonRx’s specialty pharmacy volumes if commercial members opt for direct-to-consumer purchasing. Management maintains that 2026 is a "reset year," with a target to return to at least 12% adjusted EPS growth in 2027 as the fee-based pivot matures and Medicaid rates stabilize.

Elevance Health Inc. (ELV) Stock Price & AI Analysis

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Valuation

50Fair Value

Sentiment

79Bullish

Risk

100Low Risk

Momentum

47Neutral

Institutional-Grade Intelligence

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Actionable Intelligence

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Catalyst Roadmap

Event timeline with expected impact & market context

Deep Insights

Fact-checked analysis & score logic breakdown

Financial Statements

Margin Trends

Gross

25.6%▼2.3pp

Revenue after COGS

Operating

4.1%▼1.0pp

After operating expenses

Net

2.8%▼0.5pp

Bottom-line profitability

Gross Margin

Operating Margin

Net Margin

Valuation Snapshot

P/E Ratio

13.7

Price vs earnings

EV/EBITDA

10.4

Enterprise value

FCF Yield

4.1%

Cash generation

Earnings Yield

7.3%

Inverse of P/E

Capital Efficiency

9

GoAI Quality ScoreFair

ROEReturn on Equity

12.9%Fair

ROAReturn on Assets

4.7%Fair

ROICReturn on Invested Capital

8.4%Fair

Financial Health

Current RatioWeak

0.60

Short-term solvency (>1.5)

Net Debt / EBITDAManageable

2.34x

Debt repayment capacity (<3x)

Income QualityFair

0.76

Cash backs earnings (>1)

Revenue & Profitability

Revenue

Net Income

Net Loss

Income Statement

Metric	FY2025	FY2024	FY2023	FY2022	FY2021
Revenue	$199.13B	$176.81B	$171.34B	$156.59B	$138.64B
Gross Profit	$50.90B	$49.24B	$47.01B	$39.95B	$35.99B
Gross Margin	25.6%	27.9%	27.4%	25.5%	26.0%
Operating Income	$8.11B	$8.89B	$8.74B	$8.45B	$8.95B
Net Income	$5.66B	$5.98B	$5.99B	$5.89B	$6.10B
Net Margin	2.8%	3.4%	3.5%	3.8%	4.4%
EPS	$25.18	$25.81	$25.38	$24.56	$25.25

Average Price Target

$387.14▲ 12.9% Upside

Past 12 Months

12 Month Forecast

Based on 50 Wall Street analysts offering 12 month price targets for Elevance Health Inc., the average price target is $387.14, with a high forecast of $425.00 and a low forecast of $332.00. The average price target represents a 12.9% increase from the current price of $342.93.

Highest

$425.00

Average

$387.14

Lowest

$332.00

Rating Distribution

Strong Buy

0

0%

Buy

26

70%

Hold

11

30%

Sell

0

0%

Strong Sell

0

0%

Recent Analyst Ratings

FirmActionRatingDate

Truist Securities● Maintain

Buy

2026-02-02

JP Morgan● Maintain

Overweight

2026-02-02

Wells Fargo● Maintain

Overweight

2026-01-30

Barclays● Maintain

Overweight

2026-01-30

Guggenheim● Maintain

Buy

2026-01-29

Guggenheim● Maintain

Buy

2026-01-22

Wolfe Research▲ Upgrade

Peer Perform→Outperform

2026-01-08

Wells Fargo● Maintain

Overweight

2026-01-07

Barclays● Maintain

Overweight

2026-01-05

Deutsche Bank▼ Downgrade

Buy→Hold

2025-12-19

Earnings History & Surprises

BEAT RATE

89%

Last 18 quarters

AVG SURPRISE

+3.3%

EPS vs Estimate

BEATS / MISSES

16/2

Last 18 quarters

LATEST EPS

$3.33

Q1 '26

QUARTERLY EPS TREND

Estimated

Beat

Miss

QUARTERLY DETAIL

Q1 '26

+7.4%

$3.33 vs $3.10

Q4 '25

+22.3%

$6.03 vs $4.93

Q3 '25

-0.8%

$8.84 vs $8.91

Q2 '25

+4.9%

$11.97 vs $11.41

Q1 '25

+1.1%

$3.84 vs $3.80

Q4 '24

-13.4%

$8.37 vs $9.66

Q3 '24

+1.1%

$10.12 vs $10.01

Q2 '24

+1.0%

$10.64 vs $10.53

Q1 '24

+1.3%

$5.62 vs $5.55

Q4 '23

+6.4%

$8.99 vs $8.45

Q3 '23

+2.7%

$9.04 vs $8.80

Q2 '23

+2.2%

$9.46 vs $9.26

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