When 90% Isn't an A+: Elevance's Cost Crunch and Carelon's Cushion

Core Insights - Elevance Health, Inc. is facing challenges from rising medical costs, slower Medicaid recovery, and increased utilization, leading to a reduced outlook for 2025 [1][5] - The company reported a significant increase in benefits expenses and cost of products sold in the first half of the year [1] Financial Performance - Benefits expense surged nearly 18% to over $72 billion, while cost of products sold increased almost 19% to $10.3 billion [1] - The second-quarter benefit expense ratio reached 88.9%, up 260 basis points year over year, with a projected full-year ratio of about 90% compared to 88.5% in 2024 [2][9] Membership and Growth - Commercial individual memberships rose 9.7% in the first half of 2025, following a 25.6% increase in 2024, indicating strong growth in the commercial segment [3][9] - Carelon's revenue is expected to grow nearly 30% in 2025, driven by a 60% surge in Carelon Services [4][9] Competitive Landscape - Other companies in the health benefits space, such as UnitedHealth Group and Centene Corporation, are also experiencing pressure from rising medical costs [6] - UnitedHealth's medical care ratio deteriorated to 89.4%, while Centene's health benefits ratio reached 93%, indicating industry-wide challenges [7] Valuation and Estimates - Elevance's shares have declined 20.7% year-to-date, compared to a 3.9% decline in the industry [8] - The forward price-to-earnings ratio for Elevance is 9.19, significantly lower than the industry average of 14.57, with a Zacks Consensus Estimate for 2025 earnings at $30.59 per share, reflecting a 7.4% decline from the previous year [10][11]