Elevance Shoots for the Stars But Lands at 3.5: $375M Bonus Gone?

Core Insights - Elevance Health, Inc. faced a legal setback as a federal judge dismissed its challenge against the Medicare Advantage star ratings set by the Centers for Medicare & Medicaid Services (CMS) [1][4] - The dismissal means Elevance will forgo an estimated $375 million in bonus payments for 2025 due to a rating that was rounded down from 3.749565 stars to 3.5 stars, just below the four-star threshold [2][8] - The outcome emphasizes the regulatory risks in the Medicare Advantage sector, potentially influencing operational strategies for Elevance and its peers [4] Financial Implications - Elevance's rating downgrade will result in a significant loss of bonus payments, estimated at $375 million for 2025 [2][8] - The company's shares have declined by 16.1% year-to-date, contrasting with the industry's growth of 0.2% [7] Industry Context - CMS issues annual star ratings that are critical for determining federal bonus payments and consumer enrollment in Medicare Advantage plans [3][8] - Other insurers, such as Centene Corporation and Humana Inc., have also faced challenges related to rating methodology changes, with varying outcomes [5][6] Valuation Metrics - Elevance currently trades at a forward price-to-earnings ratio of 9.72, significantly lower than the industry average of 15.25 [10] - The Zacks Consensus Estimate for Elevance's 2025 earnings is $30.15 per share, reflecting an 8.8% decline from the previous year [11]