MM Curator summary
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[MM Curator Summary]: Anthem tells shareholders they will get through the PHE wind-down just fine. Largely because those people kicked off of Medicaid are going to go back to getting commercial coverage from their employers (which Anthem will sell to them).
Elevance Health’s ELV strong second-quarter results contributed to a mild 2023 outlook increase and caused the shares to rise closer to our $520 fair value estimate in early trading July 19. Our expectations for the year remain in line with the new target, and we’re keeping our fair value estimate intact. The firm’s narrow moat looks solid, built on local scale leadership that helps it offer lower prices than most competitors.
In the second quarter, Elevance turned in 13% revenue, 12% operating profit, and 13% adjusted EPS growth, including recent share repurchases. Despite increasing medical utilization trends and the resumption of Medicaid redetermination activities after the public health emergency, the medical insurance segment led the way, increasing revenue 11% and operating profits 21%. Medical membership grew 2% year over year, including strong growth in the individual business (18%) and decent growth in Medicare Advantage (6%) and Medicaid (5%). Sequentially, Medicaid membership started to decline a bit (down 1%) after the resumption of redetermination efforts in the quarter to ensure only qualified individuals are covered. Eventually, we suspect there will be a membership mix shift from Medicaid to higher-margin employer-sponsored or individual plans, but redeterminations create a near-term risk to profits, especially if there is a coverage gap during this transition.
Overall, though, Elevance turned in a solid quarter that appeared to relieve investors worried about medical utilization trends recently highlighted by key managed-care organization peers. Management said Elevance already tried to price for such trends in 2023 and even mildly raised its 2023 adjusted EPS outlook to at least $32.85 while largely maintaining its margin assumptions, including for its medical loss ratio. Our 2023 EPS forecast remains roughly in line with the firm’s new goal, and we do not anticipate making significant changes to our assumptions based on this announcement.