Dj Elevance Health Price Target Cut To $425.00/Share From $435.00 By Ubs

What Happened?

Shares of health insurance provider Elevance Health fell 3.5% in the afternoon session after the company's CFO flagged potentially elevated medical costs and weakening margins at an investor conference.

Speaking at a Wells Fargo conference, Chief Financial Officer Mark Kaye stated that Medicaid costs in the third quarter are trending slightly higher than anticipated. More significantly, the company “no longer expect[s] sequential operating margin improvement in the second half of the year.” Kaye also noted that medical costs under the Affordable Care Act are “meaningfully elevated versus historical levels.” The commentary overshadowed the company’s reaffirmation of its 2025 adjusted earnings forecast of about $30 per share. The negative outlook on costs and margins appeared to spook the entire sector, as shares of other health insurers also declined on the news. Mizuho analysts described the overall commentary as “mixed” given the limited upside to margins in the near term.

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What Is The Market Telling Us

Elevance Health’s shares are not very volatile and have only had 9 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was about 2 months ago when the stock dropped 11.5% on the news that the company reported its second-quarter results and cut its full-year profit guidance, citing rising medical costs.

The health insurer announced second-quarter adjusted earnings of $8.84 per share, which missed Wall Street's expectation of $9.16 per share. While revenue of $49.42 billion beat forecasts, the company's net income declined to $1.74 billion from $2.30 billion in the same quarter last year. The key concern for investors was the significant reduction in the company's full-year 2025 profit outlook. Elevance now expects adjusted earnings per share of approximately $30.00, a substantial cut from its previous forecast of $34.15 to $34.85.

Management attributed the downgrade to "elevated medical cost trends" in its Medicaid and Affordable Care Act (ACA) health plans. This was reflected in a higher benefit expense ratio—the percentage of premiums spent on medical care—which rose to 88.9%, indicating that costs are growing faster than premiums. The news also weighed on shares of other health insurers facing similar cost pressures.

Elevance Health is down 15.8% since the beginning of the year, and at $307.93 per share, it is trading 44.4% below its 52-week high of $553.50 from September 2024. Investors who bought $1,000 worth of Elevance Health’s shares 5 years ago would now be looking at an investment worth $1,115.