ELEVANCE HEALTH, INC. (ELV): what the price assumes

In the published model solve dated 2026-Q2, anchored at $394.43, ELEVANCE HEALTH, INC. (ELV) is priced for 12.2% return on equity. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-08-30 · Exported: 2026-08-31 · Source: https://boothcheck.com/report/ELV

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Solve inputs: computed at a 8.3% cost of equity with 4% terminal growth over a 10-year stage, on common book equity (FY2026).

How unusual the bet is: within-range

Valuation X-Ray

Every valuation family lands below the price. The price therefore sits beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that call it expensive: Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.0%); the inversion above states its own rate.

Per-Model Detail (n=5)

Economic-Unit Decomposition (Sum Of The Parts)

The issuer is a funded financial business. Debt, interest, and cash flows are operating inputs, so industrial EV, net-debt, WACC, and free-cash-flow lenses do not apply; value the common-equity claim with book, earnings, capital, and payout economics.

No unit-level total common-equity value is stated. Each financial unit requires supported standalone common equity, normalized earnings, capital adequacy, and payout capacity. Consolidated debt, interest, and cash are operating balances, not an enterprise-to-equity bridge; company-level book, earnings, capital, and payout lenses remain the coherent cross-checks.

Solvency

Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).

Bullet Takeaways

• Two businesses share one ticker: a Blue Cross franchise that provided health benefit and other healthcare services to roughly 34 million Blue Cross and/or Blue Shield enrollees at the end of 2025, and Carelon, a pharmacy and care-services arm that earned a higher operating margin last quarter than the insurance it exists to serve.
• The risk-bearing membership is shrinking while claims costs are not: Medicare Advantage enrollment fell 15.9% year over year to about 1.9 million, Medicaid fell 4.3%, and the benefit expense ratio rose 80 basis points to 89.7%.
• The near-term marker is management's own: full-year 2026 earnings guidance went up on July 15, and the company put down a target of at least 12% adjusted earnings growth in 2027 off this year's base.

Bull Case

What the market is asking of this company is unusually modest, and that is the whole opening argument. At roughly 1.9 times book value, the price requires a sustained return on equity of about 12.1%. The business has recently been earning about 12.9%. Stretch the window across the nineteen years of record and the long-run average has run higher still, closer to 13.3%. Slightly less than the company has actually been producing is what is being asked for. Large-cap franchises do not often trade at a level that assumes mild deterioration.

The reason the return has held is a licence, not a product. The annual report describes the company as "one of the largest health insurers in the United States in terms of medical membership", and reports that "As of December 31, 2025, we provided health benefit and other healthcare services to approximately 34 million Blue Cross and/or Blue Shield enrollees." Blue Cross rights are granted by geography and cannot be bought into. A competitor with a better product and more capital still cannot put the Blue on a card in Indiana or California. That is a strange sort of moat, defended by a trademark association rather than by technology, and it has proven remarkably durable.

Bolted onto that is the part investors tend to underweight. Carelon, the pharmacy and care-services arm, generated $19.2 billion of operating revenue in the second quarter, up 6% on the prior year, on an operating margin of 4.9% against 2.1% in the insurance segment. The services arm turns each revenue dollar into more operating profit than the insurance arm it grew out of, and it is growing faster. The 10-K is direct about why the two belong together, noting that the Health Benefits segment "benefits from working with our Carelon businesses, which support medical and pharmacy cost management, care coordination" and related functions. Cost management sold to your own insurance arm converts an expense line into a revenue line.

Scale matters here in a way it does not in most industries, because the cohort is currently sorting itself out on exactly that dimension. CNC carries trailing revenue of about 198 billion dollars, close to this company's own base, and is running a negative operating margin. MOH operates at roughly a 1% operating margin and HUM at about 1.8%, while UNH, the sector's standard-setter, runs near 4.2%. Elevance's consolidated operating margin of 3.5% in the second quarter puts it in the upper half of that spread during a period when two of its closest competitors are struggling to stay above water.

Capital allocation has been quietly relentless. The share count has fallen roughly 2.6% a year over the four years to March 2026, and about 73% of earnings has been returned as dividends plus buybacks. In the second quarter the company bought back 0.7 million shares for 234 million dollars, a weighted average of 344.62 dollars per share, which is below where the stock trades today, and it declared a third-quarter dividend of $1.72 per share on July 14, 2026 with about 5.3 billion dollars of repurchase authorisation still available. A required return of 12.1% is a much easier thing to deliver when the equity base is shrinking underneath it.

The forecasting record supports the benefit of the doubt. Since 2006 management has raised guidance on 23 separate occasions, cut it on 2, reaffirmed it on 73 and withdrawn it once. That is not a company that has repeatedly had to explain itself.

Bear Case

The variable with the most leverage over this thesis does not work for a competitor. It works for the Centers for Medicare and Medicaid Services and for fifty state Medicaid agencies. The 10-K describes the mechanism without editorial: "Our revenue from Medicare policies is based on bids submitted to CMS six months prior to the start of the contract year." and "CMS has explicit gain and loss margin requirements within the bids, as well as contract-specific federal MLR annual requirements." Read that as a business model. The price is committed half a year before the cost is known, inside margin bands somebody else sets. When medical utilisation runs above the assumption, there is no mid-year repricing available. The loss is simply taken.

That is not hypothetical, because it is happening. The benefit expense ratio reached 89.7% in the second quarter of 2026, up 80 basis points on the prior year, which management attributed to elevated medical cost trend in the Government businesses. The annual report said the same thing about the prior year: "Our benefit expense ratio increased primarily as a result of higher medical cost trend across all lines of business within our Health Benefits segment, principally within our ACA business." When roughly ninety cents of every premium dollar goes back out as claims, one point of unexpected cost trend eats a large fraction of what is left. Health Benefits operating gain fell to $0.9 billion in the quarter from $1.6 billion, and that segment's operating margin to 2.1% from 3.8%.

Meanwhile the mix is drifting the wrong way. Medicare Advantage membership fell 15.9% year over year, Medicaid 4.3%, and commercial risk-based membership 4.6%, while employer group fee-based membership rose 1.7%. Fee-based business earns an administration fee; risk-based business earns the spread between premium and claims. Losing the second while holding the first shrinks the earnings base even when the headcount looks stable, and total medical membership still slipped by 469 thousand in a single quarter.

Now put that against what the price requires. At about 1.9 times book, today's quote needs a sustained return on equity near 12.1%, against roughly 12.9% currently earned. That gap reads as comfortable until two things are added. First, persistence: of companies earning at this level, only about 69% held it for a decade. Second, the discount rate. The calculation runs on an 8.3% cost of equity, and each additional percentage point on that input raises the required return by roughly 1.9 percentage points. Add a point and a half to the cost of equity and the return required moves above what the business currently produces. If the return does not hold, the price-to-book multiple it supports compresses, and the compression arrives on the whole equity base at once rather than segment by segment.

The cohort is the evidence that this is not a company-specific worry. CNC, operating at roughly the same revenue scale, is currently running an operating loss, and MOH is holding an operating margin near 1%. HUM sits close to 1.8%. Same regulatory calendar, same cost trend, same bid mechanics, materially different outcomes on the income statement. Whatever is squeezing the sector is not squeezing every balance sheet equally, but the pressure itself is general, and this company is inside it rather than outside.

One further item belongs on the list. The Blue Cross franchise cuts both ways, because the licence carries obligations as well as rights. The 10-K notes that "Each BCBSA licensee is an independent legal organization and is not responsible for obligations of other BCBSA member organizations." and that licensees must perform administrative services for members of other licensees. The arrangement that protects the territory also binds the company into a shared system whose rules it does not set alone.

Valuation

An insurer is read on the capital it holds and the return it earns on that capital, not on a multiple of operating profit, which is why the relevant frame here is book value. At roughly 1.9 times book, the price on July 25, 2026 embeds a specific expectation for return on equity: about 12.1%, sustained. The business has recently been earning about 12.9%. Mild deterioration from there, in other words, rather than improvement. The arithmetic behind that comparison runs a five-year stage discounted at 8.3%, with long-run growth of 4% thereafter, and it places this book multiple in the upper half of the peer group without demanding the peer group's best economics.

The valuation approaches split in a specific and informative way. Only the cash-flow methods reach the price. The earnings-power methods land where the price sits roughly 48% above them, and the peer-multiple methods leave the price about a third above what they support, while the book-value-and-profitability approaches also fall short. When the static frames all land under the quote and only the long-horizon cash-flow methods clear it, the premium being paid is for durability rather than for anything visible in a trailing period.

It is worth being precise about how those cash-flow methods get there, because the mechanism matters. The perpetual-growth version starts from a free-cash base of about $6.8 billion growing 9%, discounts at 6.9%, and assumes 4% growth forever after. With less than three points between the discount rate and the assumed perpetual growth rate, the terminal value carries most of the answer. That is not a reason to dismiss the result; it is a reason to read it as a statement about the far tail rather than about the next five years.

The revenue split and the profit split do not match, which is the more useful lens on the business. Health Benefits carries about 84% of revenue, CarelonRx 12% and Carelon Services 4%, and the annual report identifies the drivers of the first as "membership levels and the health status of our members, premium pricing, medical cost trend, network performance, risk adjustment accuracy, quality ratings, and operating efficiency". Yet in the second quarter of 2026 the Carelon side produced an operating margin of 4.9% against 2.1% for Health Benefits. A blended multiple on this company is a weighted average of two different economics, and the smaller weight currently carries the better one.

Among peers the spread is wide enough to make cohort position meaningful rather than decorative. UNH runs an operating margin near 4.2% on trailing revenue of roughly 450 billion dollars; CNC, at about 198 billion dollars of revenue, is operating at a loss. The consolidated operating margin here was 3.5% in the second quarter. A book multiple in the upper half of the group is therefore a wager on staying among the operators that hold margin through this cost cycle, not a wager on the group as a whole.

The balance sheet question for a company funded by premiums and float is not leverage or coverage; it is how much capital can be sent to shareholders and how reliably. About 73% of earnings has gone out as dividends plus buybacks, the share count has fallen roughly 2.6% a year over four years, and parent-company cash and investments stood near 2.1 billion dollars at the end of June with about 5.3 billion dollars of repurchase authorisation left. That machinery is the quiet reason a 12.1% required return is achievable without heroic growth. It also means the denominator, not the numerator, is doing a meaningful share of the work.

Catalysts

The second-quarter print landed on July 15, 2026 and moved the guidance up. Operating revenue was $49.8 billion, an increase of 0.8% on the prior-year quarter, and diluted earnings came in at $6.71 per share. Full-year 2026 diluted earnings guidance was raised to at least $20.10 per share and full-year operating cash flow guidance to at least $6.0 billion. Management framed the quarter as the base for a return to at least 12% growth in its adjusted earnings measure in 2027.

The operating detail underneath is more mixed than the headline. The benefit expense ratio rose 80 basis points to 89.7%, and the consolidated operating margin fell to 3.5% from 4.9% a year earlier, with the adjusted operating expense ratio up 100 basis points to 11.0% on what the company describes as targeted investments in workforce and capabilities. Days in claims payable stood at 45.4 as of June 30, 2026, down 1.2 days from March 31 and up 2.9 days on the prior year. Total medical membership was approximately 44.9 million, a sequential decline of 469 thousand driven by a known commercial fee-based customer transition and anticipated attrition in Individual ACA and Medicaid.

Capital return continued on schedule. The company repurchased 0.7 million shares during the quarter for 234 million dollars, a weighted average of 344.62 dollars per share, leaving roughly 5.3 billion dollars of board-approved authorisation. On July 14, 2026 the audit committee declared a third-quarter dividend of $1.72 per share, payable September 25, 2026 to shareholders of record on September 10. The next visible test is whether the cost trend in the Government lines behaves well enough for the raised full-year figure to hold through the back half.

Peer Cohorts (Per Segment, With Filing Citations)

Health Benefits (reported)

• UNH (UnitedHealth Group Incorporated)
• FY2025 10-K: …provides employer-sponsored health benefits, as well as individual and family plans through portfolio of products which include consumer engagement products, such as high-deductible consumer driven benefit plans and a variety of innovative consumer centric products; traditional products; clinical and pharmacy…
• FY2025 10-K: …infrastructure and other resources. UnitedHealthcare Employer & Individual offers an array of consumer-oriented health benefit plans and services for employers and individuals. UnitedHealthcare Medicare & Retirement provides health care coverage and health and well-being services to individuals age 50 and older,…
• CI (The Cigna Group)
• FY2025 10-K: …partnerships with high-performing providers and superior clinical expertise and analytics to guide customers to the highest quality, most affordable sites of care and reduce health care waste. • Talented and experienced people who bring a highly consultative orientation to market and partner with clients to…
• FY2025 10-K: …lives. Cigna Healthcare, the health benefits segment of The Cigna Group, provides comprehensive medical and coordinated solutions to customers and clients served by our U.S. Healthcare and International Health operating segments. Together, Evernorth Health Services and Cigna Healthcare combine pharmacy and medical…
• HUM (HUMANA INC)
• FY2025 10-K: Total premiums revenue 122,825 95.5 % Services: Military services and other 1,017 0.8 % Services revenue 1,017 0.8 % Total Insurance segment premiums and services revenue $ 123,842 96.3 % Medicare We have participated in the Medicare program for private health plans for over 30 years and have established a national…
• FY2025 10-K: • Long-term care insurance • Weekly paid well-being time • Whole-person well-being and rewards programs and platform • On-demand fitness classes, nutritional education through teaching kitchens, and digital coaching apps • Incentives for engaging in well-being programs Life • Paid time off, paid holidays, paid…
• CNC (CENTENE CORPORATION)
• FY2025 10-K: …submitted before the start of the initial contract year. If our actual medical expenses exceed our estimates for any reason, our health benefits ratio (HBR), or our expenses related to medical services as a percentage of premium revenues, would increase and our profits would decline. For example, late in the second…
• FY2025 10-K: …guidance and other rulemaking changes will be critical to ensuring state and MCO implementation readiness. Medicare Medicare is the federal health insurance program for people ages 65 and over, which was expanded to cover people under 65 with certain disabilities and people with end-stage renal disease requiring…
• MOH (MOLINA HEALTHCARE, INC.)
• FY2025 10-K: The vast majority of Marketplace membership is comprised of low-income members who receive government subsidies, which is served by a limited number of health plans. Our primary competitor for low-income Marketplace membership is Centene Corporation. We compete for agents and brokers to recommend and distribute our…
• FY2025 10-K: …Although most of our health plans over the last several years have generally operated with profit margins higher than those of our direct competitors, nevertheless the profit margins of our health plans are low (in the single digits) compared to the profit margins in most other industries or business sectors. Given…

CarelonRx (reported)

• CVS (CVS HEALTH Corp)
• FY2025 10-K: …has continued to invest in information systems to enable it to deliver exceptional customer service, enhance safety and quality, and expand patient care services while lowering operating costs. The proprietary WeCARE Workflow tool supports pharmacy teams by prioritizing work to meet customer expectations,…
• FY2025 10-K: …optimizes utilization of GLP-1 medication and provides the label-recommended lifestyle support and coaching to maximize and maintain weight loss on these therapies, while addressing new indications (e.g., cardiovascular disease). The Company also has digital connectivity that helps to lower drug costs for patients by…
• MCK (McKESSON CORPORATION)
• FY2025 10-K: …foundation for a two-tiered distribution network that supports best-in-class direct store delivery. • McKesson SynerGx ® - Generic pharmaceutical purchasing program and inventory management that helps pharmacies maximize their cost savings with a broad selection of generic drugs, competitive pricing, and one-stop…
• FY2025 10-K: …enable its customers to drive greater efficiencies in their day-to-day operations, effectively managing their inventories and complying with complex government regulations. Solutions include McKesson Pharmacy Systems, MacroHelix, and Supply Logix, all of which provide innovative software technology and services that…
• COR (CENCORA, INC.)
• FY2025 10-K: …with our growth priorities and strategic drivers. As a result of this review, we have reorganized certain business components within our reporting structure. Beginning in the first quarter of fiscal 2026, our reporting structure will be comprised of U.S. Healthcare Solutions, International Healthcare Solutions, and…
• FY2025 10-K: …a Level 3 fair value measurement, was determined using a Monte Carlo simulation, which relies on assumptions, including cash flow projections, risk-free rates, volatility, and details specific to the put and call options. The Company recorded the net fair value of the net put option of $ 872.9 million, which is…
• CI (The Cigna Group)
• FY2025 10-K: …of Stockholders, filed March 21, 2016 and incorporated herein by reference. 10.2(b) Form of Stock Option Grant Notice for Non-Employee Directors used with respect to grants of stock options by Express Scripts Holding Company to non-employee directors under the ESRX LTIP Filed by ESRX as Exhibit 10.4 to the Current…
• FY2025 10-K: …2025-12-31 0001739940 us-gaap:PolicyholderAccountBalanceAboveGuaranteedMinimumCreditingRateRangeFrom0051To0150Member us-gaap:PolicyholderAccountBalanceGuaranteedMinimumCreditingRateRangeFrom0300To0399Member us-gaap:AllOtherSegmentsMember 2025-12-31 0001739940…
• UNH (UnitedHealth Group Incorporated)
• FY2025 10-K: …plans navigate a dynamic environment defined by shifts in employer vs. public-sector coverage, the demand for affordable benefit plans and the need to leverage new technology to reduce complexity. State Governments. Provides advanced technology and analytics services to modernize the administration of critical safety…
• FY2025 10-K: …alliances and business partnerships with other technology vendors, who integrate and interface Optum Insight's products with their applications. Optum Rx Optum Rx provides a full spectrum of pharmacy care services through its network of approximately 64,000 retail pharmacies, through home delivery, specialty and…

Carelon Services (reported)

• UNH (UnitedHealth Group Incorporated)
• FY2025 10-K: …held for sale ( 556 ) Total $ 4,615 Other Commitments The Company provides guarantees related to its service level under certain contracts. If minimum standards are not met, the Company may be financially at risk up to a stated percentage of the contracted fee or a stated dollar amount. None of the amounts accrued,…
• FY2025 10-K: …2024-01-01 2024-12-31 0000731766 us-gaap:OperatingSegmentsMember us-gaap:ServiceMember unh:ExternalCustomersMember unh:OptuminsightMember 2024-01-01 2024-12-31 0000731766 us-gaap:OperatingSegmentsMember us-gaap:ServiceMember unh:ExternalCustomersMember unh:OptumrxMember 2024-01-01 2024-12-31 0000731766…
• HUM (HUMANA INC)
• FY2025 10-K: …includes our pharmacy solutions, primary care, and home solutions operations. The CenterWell segment also includes our strategic partnerships with Welsh, Carson, Anderson & Stowe, or WCAS, to develop and operate senior-focused, payor-agnostic, primary care centers, as well as our minority ownership interest in…
• FY2025 10-K: …40202. In addition to the headquarters in Louisville, Kentucky, we maintain other principal operating facilities used for customer service, enrollment, and/or claims processing and certain other corporate functions. Our key administrative functions are located in Louisville, Kentucky; Arlington, Virginia; and Green…
• CI (The Cigna Group)
• FY2025 10-K: …to gain access to their provider networks and discounts. • Network Strength and Stability. We successfully maintain a broad provider network with high levels of provider retention to ensure our customers have access to high-quality care at affordable, competitive rates. • Provider Partnerships. We partner with a…
• FY2025 10-K: …the operation of internet support and customer call centers, data centers and corporate facilities; the processing of new and renewal business; the maintenance of appropriate shipment and storage conditions for prescriptions (such as temperature and protection from contamination); and home delivery processing. In…
• ACHC (Acadia Healthcare Company, Inc.)
• FY2025 10-K: …programs, including programs that condition reimbursement on patient outcome measures, to become more common and to involve a higher percentage of reimbursement amounts. We are unable at this time to predict how this 23 trend will affect our results of operations, but it could negatively impact our revenue if we are…
• FY2025 10-K: …market. Turning Point provides a full continuum of treatment services, including residential, partial hospitalization and intensive outpatient services. 41 Results of Operations The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands): Year Ended…
• PRVA (Privia Health Group, Inc.)
• FY2025 10-K: …increment of the series and is recognized as revenue in the month in which attributed members are entitled to receive care coordination services. Other Revenue The remainder of the Company's revenue is derived from leveraging the Company's existing base of providers and patients to deliver value-oriented services…
• FY2025 10-K: …due to organic growth of our healthcare delivery business and acquisitions. Non-GAAP Financial Measures In addition to our financial results determined in accordance with GAAP, we believe non-GAAP financial measures including Care Margin, Platform Contribution, Platform Contribution Margin, Adjusted EBITDA and…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.