Yahoo Finance Elevance (ELV) Q1 Earnings Beat on Rate Hikes, Guidance Raised
Elevance Health, Inc. ELV reported first-quarter 2024 adjusted earnings of $10.64 per share, which surpassed the Zacks Consensus Estimate by 0.9%. The bottom line climbed 12.5% year over year.
Operating revenues rose 0.9% year over year to almost $42.3 billion in the quarter under review. However, the top line missed the consensus mark by 0.4%.
The strong first-quarter earnings benefited on the back of lower-than-expected expenses, premium rate increases and growth in the Carelon brand. However, the upside was partly offset by attrition in Medicaid membership.
The company’s measures of premium rate hikes to counter medical cost trends have enabled it to boost 2024 guidance upward. This is expected to provide investors some relief, who were worried about growing medical costs and the effects of a cyberattack against a major rival.
Elevance Health, Inc. Price, Consensus and EPS Surprise
Elevance Health, Inc. price-consensus-eps-surprise-chart | Elevance Health, Inc. Quote
Q1 Operational Update
As of Mar 31, 2024, Elevance Health’s medical membership was around 46.2 million, which declined 4% year over year in the first quarter. The decrease can be attributed to the attrition in its Medicaid business, partially offset by increases in Affordable Care Act plans, BlueCard and commercial Employer Group fee-based business. The reported figure fell short of the Zacks Consensus Estimate of 46.6 million.
Premiums of $35.7 billion declined 0.5% year over year in the quarter under review but were marginally higher than our model estimate of $35.6 billion. Product revenues climbed 11.9% year over year to $4.5 billion, which met our estimate. Net investment income of $465 million improved 20.2% year over year but missed our estimate by 7.5%. The total operating margin improved 30 bps year over year to 7.1% in the first quarter.
Total expenses increased 0.2% year over year to $39.6 billion due to higher cost of products sold and operating expenses. The reported figure was marginally lower than our estimate of $39.8 billion. The operating expense ratio of 11.6% increased 10 basis points (bps) year over year and missed our estimate of 11.3%. The benefit expense ratio improved 20 bps year over year to 85.6%, which compared favorably with the consensus estimate of 86.2% and our model estimate of 86.5%.
Segmental Performance
Health Benefits
The segment reported operating revenues of $37.3 billion in the first quarter, flat year over year and almost in line with our estimate, thanks to premium rate hikes. Operating gain increased 6% year over year to $2.3 billion and met the consensus estimate due to premium yields, which incorporate disciplined commercial underwriting. The operating margin improved 30 bps year over year to 6.1% in the quarter under review.
Carelon
Operating revenues of the segment increased 5% year over year to $12.1 billion but came lower than the Zacks Consensus Estimate of $12.5 billion and our model estimate of $12.3 billion. The segment benefited from the launch of new risk-based capabilities in Carelon Services and improved performance in CarelonRx, fueled by an increase in external members served. The positives were partially offset by the impact of Medicaid membership attrition.
The unit’s operating gain increased 9.7% year over year to $813 million in the first quarter. Also, the metric beat the Zacks Consensus Estimate of $767.6 million, as well as our estimate of $763.6 million, thanks to the better performance in some risk-based arrangements in Carelon Services businesses. The operating margin of 6.7% improved 20 bps year over year in the quarter under review.
Corporate & Other
Operating revenues of $127 million rose 39.6% year over year in the quarter under review. The unit incurred an operating loss of $84 million, wider than the prior-year quarter’s loss of $59 million.
Financial Details (as of Mar 31, 2024)
Elevance Health exited the first quarter with cash and cash equivalents of $6.2 billion, which fell from the 2023-end level of $6.5 billion. Total assets of $111.9 billion grew from the $108.9 billion figure at 2023 end.
Long-term debt, less current portion, was almost $22 billion, down from the $23.2 billion figure as of Dec 31, 2023. Short-term borrowings at the first-quarter end were at $1.6 billion, while the current portion of the long-term debt amounted to $2.9 billion.
Total equity of $40.7 billion improved from the 2023-end level of $39.4 billion.
ELV generated net cash flow from operations of almost $2 billion in the first quarter, which plunged from the prior-year level of $6.5 billion.
Capital Deployment Update
Elevance Health bought back shares worth $566 million in the first quarter. It had a leftover capacity of around $3.6 billion under its share buyback authorization as of Mar 31, 2024.
ELV paid out a quarterly dividend of $1.63 per share, adding up to a cash distribution worth $379 million in the quarter under review.
2024 Outlook
New Update
Adjusted earnings are now anticipated to be more than $37.20 per share (improving from previous guidance of greater than $37.10), up from the 2023 reported figure of $33.14 per share. GAAP earnings are currently projected to be more than $34.05 per share.
Previous View
Earlier, it stated that the operating margin for the Health Benefits segment for 2024 was estimated to witness an increase of 25-50 bps from the 2023 reported figure of 4.6%. Also, the operating margin for CarelonRx was expected to see 40-60 bps growth, while the same for Carelon Services was estimated to be flat to a decline of 30 bps.
Management expected operating revenues to witness flat to low-single-digit growth in 2024 from $170.2 billion in 2023. Premium revenues were estimated to remain in line with the 2023 level of $142.9 billion. Medical enrolment was forecasted to be within 45.8-46.6 million this year, down from 47 million in 2023.
Net investment income was anticipated to be $1.9 billion, marginally up from $1.8 billion in 2023. Interest expenses were forecasted to be $1.1 billion in 2024, while operating cash flow was likely to exceed the $8.1 billion level of 2023. Diluted shares were estimated to decline to 233-234 million from 237.4 million at 2023-end.
Zacks Rank & Key Picks
Elevance Health currently carries a Zacks Rank #3 (Hold).
Investors interested in the broader Medical space may look at some better-ranked players like Universal Health Services, Inc. UHS, Avantor, Inc. AVTR and Health Catalyst, Inc. HCAT, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Universal Health Services’ 2024 bottom line suggests 26.6% year-over-year growth. UHS has witnessed six upward estimate revisions over the past two months against one movement in the opposite direction. It beat earnings estimates in all the last four quarters, with an average surprise of 5.9%.
The Zacks Consensus Estimate for Avantor’s full-year 2024 earnings is pegged at $1.01 per share, which remained stable over the past week. AVTR beat earnings estimates in two of the past four quarters, met once and missed on the other occasion, with an average surprise of 3.4%. The consensus mark for revenues is pegged at almost $7 billion.
The Zacks Consensus Estimate for Health Catalyst’s 2024 full-year earnings implies a 120% increase from the year-ago reported figure. HCAT beat earnings estimates in each of the last four quarters, with an average surprise of 247.9%. The consensus mark for its current-year revenues is pegged at $308.3 million, which indicates a 4.2% year-over-year increase.
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