ELV

Elevance is a textbook managed-care value debate, and the numbers land it squarely on hold. The valuation is undemanding: 15.4x FY2025 diluted EPS of $25.21 and 0.4x sales on $199B of revenue are at the low end for a profitable health insurer, and management is actively shrinking the share count (-2.9% YoY) while paying a growing dividend ($1.53B) and buying back stock ($2.60B). ROE of 12.9% and $43.9B of equity backed by $35.4B of retained earnings show this is a real, profitable franchise, not a broken one.

The problem is the trend underneath the cheap multiple. Revenue has compounded from $139B (FY2021) to $199B (FY2025), yet net income has gone the other way — $6.16B to $5.66B over the same span, and -5.3% this year alone. Operating income fell -8.4% and the operating margin sits at just 3.6% (2.8% net), the signature of a business where the top line grows but cost trend eats the profit. This ties directly to the 10-K's lead risk: premiums on commercial and Medicaid are fixed for 12 months and Medicare bids are locked six months ahead, so 'costs we incur in excess of our benefit cost projections cannot be recovered in the contract year.' Slight medical-cost misses compound into large earnings swings, and that is what the declining margin is showing.