Elevance Health Stock Sinks as Medicaid Woes Hit Earnings

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Elevance Health (ELV) stock is one of the worst S&P 500 stocks in Thursday's session. The selloff comes after the health insurance company missed bottom-line expectations for its third quarter and lowered its full-year profit forecast, citing Medicaid uncertainties.

In the three months ended September 30, Elevance Health saw revenue increase 5.2% year-over-year to $44.7 billion. However, its earnings per share (EPS) decreased 6.9% from the year-ago period to $8.37 due to increased costs in its Medicaid business.

The results were mixed compared to analysts' expectations. Wall Street was anticipating revenue of $43.4 billion and earnings of $9.66 per share, according to Yahoo Finance.

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"We remain confident in the long-term earnings potential of our diverse businesses as we navigate a dynamic operating environment and unprecedented challenges in the Medicaid business," said Elevance Health CEO Gail Boudreaux in a statement. "We expect Medicaid rates will align with the needs of our members in time, and are taking proactive actions to enhance operational efficiencies that will ensure we emerge from this period even stronger."

Due to its third-quarter results and "the timing mismatch between Medicaid rates and acuity," Elevance Health revised its full-year profit forecast. The company now anticipates earnings of approximately $33 per share, down from its previous guidance for earnings of $37.20.

Is Elevance Health stock a buy, sell or hold?

Elevance Health has underperformed the broader market in 2024, down nearly 7% for the year to date. Still, Wall Street remains bullish on the healthcare stock.

According to S&P Global Market Intelligence, the average analyst target price for ELV stock is $603.65, representing implied upside of almost 40% to current levels. Additionally, the consensus recommendation is a Buy.

Financial services firm Baird is one of those with an Outperform rating (equivalent to a Buy) on the large-cap stock and a $625 price target.

"We believe the power of Elevance's idiosyncratic long-term growth drivers has been significantly underappreciated by investors," wrote Baird analyst Michael Ha in an October 15 note.

Ha believes ELV is "well positioned to see immediate multiple expansion above historical levels" thanks to "numerous recent positive developments within its Carelon segment (both Service and Rx segments) and the high visibility and strength of its 2024 EPS bridge." This puts the company "fully on its way to closing the valuation multiple gap to both UnitedHealth (UNH) and Humana (HUM)," he adds.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.