Back to Portfolio
ELV

Elevance Health

$345.74 77.9B market cap February 1, 2026
Elevance Health Inc ELV BUFFETT / MUNGER / KLARMAN SUMMARY
1 SNAPSHOT
Price$345.74
Market Cap77.9B
2 BUSINESS

Elevance Health is a quality defensive healthcare franchise with narrow moat from the Blue Cross Blue Shield brand licensing in 14 states and deep provider networks. The company generates $175-200B in annual revenue with stable recurring premiums and historically 15%+ ROE. However, post-COVID Medicaid redeterminations created a higher acuity member mix, compressing ROE to 12.9% and FCF from $7B to $3B. While management expects Medicaid margins to recover as rates catch up to costs, the timing is uncertain. At $346 (13.75x earnings), the stock trades near fair value but lacks adequate margin of safety given execution risks in the Carelon build-out and ongoing government program policy risks. Seth Klarman's +114% position increase signals potential defensive rotation opportunity, but patient investors should wait for accumulation prices of $300 or below (12x earnings) to provide the margin of safety that value investing demands.

3 MOAT NARROW

Blue Cross Blue Shield exclusive licensee in 14 states, largest provider networks in operating markets, deep government program relationships

4 MANAGEMENT
CEO: Gail Boudreaux

Good - consistent dividend growth (14 years), disciplined buybacks at $2.3-2.9B/year

5 ECONOMICS
3.5% Op Margin
10.5% ROIC
12.9% ROE
13.75x P/E
3.2B FCF
51.3% Debt/EBITDA
6 VALUATION
FCF Yield4.1%
DCF Range334 - 450

Near fair value - approximately 12% upside to DCF-based fair value, but 22% below 52-week high

7 MUNGER INVERSION
Kill Event Severity P() E[Loss]
Government policy risk - 50% revenue from Medicare/Medicaid programs subject to rate cuts HIGH - -
Medicaid margin pressure - rates lagging cost trends by 12-18 months MED - -
8 KLARMAN LENS
Downside Case

Government policy risk - 50% revenue from Medicare/Medicaid programs subject to rate cuts

Why Market Right

Continued Medicaid margin deterioration if rates remain inadequate; Further Medicare Advantage rate cuts from CMS; Political/regulatory headlines (prior authorization, congressional scrutiny); Carelon integration challenges with multiple acquisitions

Catalysts

Medicaid rate catch-up as states adjust for higher member acuity (Q2-Q4 2025); Carelon growth inflection with specialty pharmacy and services scaling; Medicare Advantage enrollment growth of 7-9% in 2025; Healthcare defensive rotation - Seth Klarman +114% position increase; Return to 12% EPS growth algorithm as temporary headwinds pass

9 VERDICT WAIT
B+ Quality Moderate - Higher leverage typical for insurers (1.77x D/E), but 7x interest coverage provides buffer. FCF declined in 2024-2025 due to Medicaid issues.
Strong Buy$250
Buy$300
Fair Value$450

Add to watchlist; begin accumulating at $300 (12x earnings); aggressive buying at $250 (10x earnings)

🧠 ULTRATHINK Deep Philosophical Analysis

Elevance Health (ELV) - Deep Philosophical Analysis

A Buffett/Munger/Klarman Meditation on Healthcare Insurance

The Core Question: What Is Elevance Health, Really?

Strip away the corporate language, the acronyms, the PowerPoint slides. What does Elevance Health actually do?

At its essence, Elevance collects money from employers, individuals, and the government. It then decides which medical bills to pay and which to deny. The profit comes from the spread - premiums in minus claims paid out. Everything else is noise.

This is both the business's strength and its vulnerability. Strength because as long as people need healthcare (always), someone must intermediate the payment. Vulnerability because no one actually likes their health insurer. Doctors resent the prior authorizations. Patients resent the denials. Employers resent the premium increases. Politicians resent the profit margins.

Charlie Munger would say: "You're investing in a business that everyone hates. That's either contrarian genius or contrarian stupidity, and often it's hard to tell which."

Moat Meditation: Is the Blue Cross Shield Still Worth Something?

The Blue Cross Blue Shield name has been around since 1929. Nearly a century of brand building. In 14 states, Elevance has the exclusive right to use this name. That's valuable.

But how valuable?

Warren Buffett has always said the best moats are psychological - brands that consumers want to buy. Coca-Cola. Apple. American Express. People don't want to buy health insurance; they're forced to buy it. They don't choose BlueCross over Cigna because they love the brand; they choose whoever their employer picked or whoever is cheapest on the exchange.

The Blue Cross moat is not brand affection. It's more like regulatory capture combined with organizational inertia. Employers know the name. HR departments have relationships with the sales team. State governments have 30-year contracts. Switching is possible but painful.

This is what I call a "hassle moat" - not as durable as a true brand moat, but real nonetheless. Hassle moats work until someone builds a better mousetrap, or until the government decides the hassle isn't worth it and changes the rules.

The uncomfortable truth: The moat is probably narrower than it appears. UnitedHealth has proven you can compete nationally without BCBS. Kaiser has proven you can integrate care delivery. Oscar tried to prove you could build a better experience (with mixed results). The moat exists but it's not a fortress.

The Owner's Mindset: Would Buffett Hold This for 20 Years?

Imagine you bought Elevance and couldn't sell it for two decades. What would you worry about?

What I'd worry about:

  1. Single-payer risk. Medicare for All might be unlikely today, but in 20 years? All it takes is one bad recession, one healthcare cost crisis, one charismatic politician. The British NHS was created in one act of Parliament after World War II. The Canadian system emerged from a single province's experiment. Black swans happen.

  2. Technology disruption. Amazon, Google, and Apple have all made healthcare plays. They failed so far. But in 20 years? Could AI-powered health management eliminate the need for human claims processing? Could vertical integration by pharmacy benefit managers eat into traditional insurance profits?

  3. Demographic math. Baby Boomers aging means more Medicare, which means more government price controls. Medicaid expansion means more state budget pressures, which means more rate battles. The demographics are favorable for volume but unfavorable for margins.

What I wouldn't worry about:

  1. Healthcare demand disappearing. People will always get sick.
  2. The concept of insurance dying. Risk pooling is basic economics.
  3. Complete government takeover. The healthcare-industrial complex has powerful lobbying.

Would Buffett hold it? Probably not enthusiastically. He's said he doesn't understand healthcare well, and the regulatory uncertainty would bother him. But it's not outside the realm of his holding - stable cash flows, dividends, share buybacks. It's just not a "wonderful business" - it's a "fair business."

Risk Inversion: What Could Destroy This Business?

Munger's inversion principle: Figure out how to fail, then don't do that.

How Elevance fails:

  1. Medicare Advantage implosion. CMS keeps cutting rates. Stars ratings keep getting harder. Members flee to Traditional Medicare or competitors. Margins go negative. Elevance exits markets. Scale advantages vanish.

  2. Medicaid exits. State rate inadequacy becomes permanent. Elevance loses money serving the poor. Forces exit from Medicaid. Loses 10M+ members. Fixed costs spread over smaller base. Death spiral.

  3. Carelon stumbles. Acquisitions fail to integrate. Pharmacy benefits business loses to Express Scripts/CVS/OptumRx. Services business can't compete with Optum. $10B+ of invested capital destroyed.

  4. Regulatory hammer. DOJ prior authorization lawsuit results in massive behavioral change. Prior auth denial rates legally capped. Medical loss ratios mandated higher. Profit margins squeezed to utility-like levels.

  5. BCBS Association dispute. Other BCBS plans or the Association itself creates governance crisis. License at risk. Brand value impaired.

Probability assessment:

  • Complete failure: <5%
  • Significant impairment (stock down 50%+): 15-20%
  • Muddle through (flat-ish returns): 40-50%
  • Moderate success (10-12% annual returns): 30-35%
  • Outstanding success (15%+ annual returns): 5-10%

This distribution is exactly what you'd expect from a fair-to-good business at fair value: mostly ok, occasionally bad, rarely great.

Valuation Philosophy: Is Price Justified by Quality?

Seth Klarman would ask: "Why does this opportunity exist? Why am I being given the chance to buy this business at this price?"

The opportunity exists because:

  1. Medicaid headlines. Cost trends outpacing rates. ROE compression. FCF collapse. Headlines are ugly.

  2. Healthcare sector rotation out. After COVID-era outperformance, healthcare has underperformed. Money flowing to AI, tech.

  3. Political uncertainty. Both parties attacking health insurers. Nobody wants to own them going into election season.

But is the price actually cheap?

At $346, we're paying 13.75x earnings for a business earning 13% ROE. That math only works if:

  • ROE recovers to 15%+ (not certain)
  • Earnings grow at 10%+ (requires Medicaid fix AND Carelon execution)
  • Multiple stays stable at 14x (requires no additional political/regulatory surprises)

Graham would say: "The margin of safety isn't there. At $300, maybe. At $250, definitely."

Klarman would add: "I only buy when the downside is minimal and the upside is substantial. At $346, the downside is 30% (bear case $240) and the upside is 30% (bull case $450). That's not asymmetric enough."

Buffett would conclude: "It's not clearly undervalued and it's not a wonderful business. That's a pass."

The Patient Investor's Path: When and How to Act

The answer is wait.

Elevance is not a bad company. It's a decent business in a tough industry, run by competent management, facing temporary headwinds. But value investing is about buying dollars for fifty cents, not buying dollars for ninety cents.

Specific guidance:

  1. Add to watchlist. Track quarterly earnings for Medicaid margin commentary.

  2. Set price alerts. $300 (accumulate), $270 (add more), $250 (back up the truck).

  3. Watch for catalysts. Medicaid rate catch-up announcements. Carelon contract wins. Political clarity post-election.

  4. Don't force it. If the price never drops, that's fine. There are other fish in the sea.

  5. Size appropriately. Even at bargain prices, this deserves 2-3% of portfolio, not 5-10%. The regulatory risks cap the conviction level.

Final reflection:

Seth Klarman's +114% position increase is interesting but not determinative. He has access to information and conviction levels we don't. He might be right that this is a defensive rotation opportunity. He might be early. He might be wrong.

The patient investor waits for prices that make being wrong survivable and being right lucrative. At $346, Elevance offers neither. At $250, it might offer both.

"In the short run, the market is a voting machine, but in the long run it is a weighing machine." - Benjamin Graham

The market is voting "meh" on Elevance right now. Our job is to wait until the weighing machine gives us a better price.

Executive Summary

Elevance Health is the second-largest health benefits company in the United States, operating primarily through the Blue Cross Blue Shield brand in 14 states. The company provides health insurance to approximately 46 million members across Commercial, Medicare Advantage, and Medicaid segments, while also growing its healthcare services division (Carelon).

Verdict: WAIT - Quality defensive healthcare business currently trading near fair value. The 22% pullback from 52-week highs creates interest, but Medicaid margin pressures and ROE compression warrant a more attractive entry point. Target accumulation at $300 or below for 15% margin of safety.

1. Business Quality Assessment

Understanding the Business

One-Sentence Description: Elevance Health collects insurance premiums from employers, government programs, and individuals, manages healthcare costs through provider networks and care management, and earns the spread between premiums and medical costs paid out.

Revenue Mix (2025):

  • Health Benefits (85%): Commercial (employer-sponsored), Medicare Advantage, Medicaid managed care
  • Carelon Services (15%): Pharmacy benefits (CarelonRx), behavioral health, care management, analytics

How They Make Money:

  1. Premiums: Collect monthly payments from members/employers/government
  2. Investment Income: Float from unpaid claims provides investment returns
  3. Fee Revenue: Administrative services for self-insured employers
  4. Carelon Growth: Pharmacy and healthcare services to internal and external customers

Competitive Position / Moat Analysis

Moat Type: NARROW (Blue Cross Blue Shield Brand + Scale)

Moat Source Strength Durability
BCBS Brand Franchise Strong 15+ years
Provider Network Strong 10+ years
Scale Advantages Moderate 10+ years
Switching Costs Moderate 5-10 years
Regulatory Relationships Moderate 10+ years

Detailed Moat Analysis:

  1. Blue Cross Blue Shield Brand (PRIMARY)

    • Exclusive licensee in 14 states with long-established local presence
    • Brand recognition among employers and members built over 80+ years
    • However, BCBS association is through licensing, not ownership
    • Risk: BCBS Association governance disputes possible

  2. Provider Networks

    • Largest network of hospitals and physicians in operating markets
    • Deep provider relationships enable value-based care contracts
    • ~35% of care now under downside risk arrangements (up from 20% three years ago)

  3. Scale

    • 46 million members provide purchasing power for pharmacy and provider negotiations
    • Spread fixed costs across large member base
    • Carelon can serve both internal (85%) and external (15%) customers

  4. Regulatory & Government Relationships

    • Decades-long relationships with state Medicaid agencies
    • Established Medicare Advantage operations
    • High barriers to new entrants in government programs

Moat Trend: STABLE - Not clearly widening due to competitive pressure from UnitedHealth's Optum, but not narrowing either. The integration of Carelon provides some differentiation.

2. Financial Fortress Assessment

Balance Sheet Strength

Metric 2025 2024 2023 2022 2021 Assessment
Total Assets ($B) 121.5 116.9 108.9 102.8 97.5 Growing
Shareholders' Equity ($B) 43.9 41.3 39.3 36.2 36.1 Growing
Total Debt ($B) 32.0 31.2 25.1 24.1 23.0 Elevated
Cash ($B) 9.5 8.3 6.5 7.4 4.9 Adequate
Debt/Equity 1.77 1.83 1.77 1.83 1.70 Concern

Key Observations:

  • Debt/Equity ratio of 1.77x is elevated for a defensive investor
  • However, insurance companies typically operate with higher leverage due to policyholder reserves
  • Net debt (Total Debt - Cash) = $22.5B, representing 2.3x EBITDA
  • Interest coverage remains healthy with EBITDA of $9.9B vs interest expense of ~$1.4B (7x coverage)

Profitability Analysis

Metric 2025 2024 2023 2022 2021 5-Yr Avg
Revenue ($B) 198.7 176.8 171.3 156.6 138.6 --
Operating Margin 3.5% 4.5% 4.5% 4.9% 5.8% 4.6%
Net Margin 2.8% 3.4% 3.5% 3.8% 4.4% 3.6%
ROE 12.9% 14.6% 15.3% 16.4% 16.9% 15.2%

Buffett ROE Test: 5-year average ROE of 15.2% meets the Buffett threshold, but trending downward. 2025 ROE of 12.9% is concerning.

Margin Compression Explained:

  • Medicaid redeterminations post-COVID led to higher acuity member mix
  • Rate increases lagging actual cost trends
  • Medical Loss Ratio increased to 88.5% (vs historical 85-86%)
  • Management expects improvement as rates catch up to costs

Cash Flow Quality

Year Operating CF ($B) CapEx ($B) FCF ($B) Dividends ($B) Payout Ratio
2025 4.29 1.12 3.17 1.53 27%
2024 5.81 1.26 4.55 1.51 25%
2023 8.06 1.30 6.76 1.40 23%
2022 8.40 1.15 7.25 1.23 20%
2021 8.36 1.09 7.28 1.10 17%

Key Observations:

  • FCF declined significantly in 2024-2025 due to Medicaid issues
  • Management guides to $8B operating cash flow in 2025 (vs $4.3B actual through year-end)
  • Dividend payout ratio remains conservative at 27% of FCF
  • CapEx relatively light at $1.1B (0.6% of revenue)

Dividend History:

  • 14 consecutive years of dividend increases
  • Current yield: 2.0% ($6.84 annual dividend)
  • 5-year dividend CAGR: 15%
  • 10-year dividend CAGR: 12%
  • Total dividends paid since 2011 have grown from $0.25/quarter to $1.71/quarter

Share Buybacks:

  • $2.9B repurchased in 2024
  • $2.3B planned for 2025
  • Shares outstanding declined from ~250M (2018) to ~222M (2025)

3. Risk Assessment (Munger Inversion)

Primary Risks

1. Government Policy Risk (HIGH)

  • ~50% of revenue from government programs (Medicare + Medicaid)
  • Medicare Advantage rates cut for two consecutive years
  • Medicaid rate adequacy battles with states ongoing
  • Political risk from both parties (healthcare cost debates)

2. Medicaid Margin Pressure (MEDIUM-HIGH)

  • Post-COVID redeterminations removed healthier members
  • Remaining members have higher acuity/costs
  • Rates lagging actual cost trends by 12-18 months
  • Management expects margins below long-term target through 2025

3. Competition from UnitedHealth/Optum (MEDIUM)

  • UNH's Optum vertical integration sets industry standard
  • Optum has greater scale in healthcare services
  • Carelon must execute to close capability gap
  • UNH trades at premium multiple, showing market preference

4. Regulatory/Legal Risk (MEDIUM)

  • DOJ investigation of prior authorization practices industry-wide
  • Potential Medicare Advantage audits and clawbacks
  • Ongoing litigation around claims denials

5. Execution Risk in Carelon (MEDIUM)

  • Multiple acquisitions require integration (CareBridge, Kroger Specialty Pharmacy)
  • Scaling healthcare services outside core insurance
  • Investment spending depressing near-term margins

What Could Kill This Investment?

  1. Single-payer healthcare legislation - Would nationalize the industry
  2. Sustained rate inadequacy in government programs - Compressing margins to unprofitability
  3. Major regulatory action - Heavy fines or exclusion from government programs
  4. Management execution failure - Carelon investments fail to generate returns

Charlie Munger Criticism

"You're buying a middleman in a system where everyone wants to eliminate middlemen. The government hates them, doctors hate them, patients hate them. The only moat is regulatory complexity, which can change with one act of Congress. And management has no skin in the game - insiders own 0.17% of the company."

4. Valuation Analysis

Current Valuation Metrics

Metric Current Historical Avg Sector Avg Assessment
P/E (TTM) 13.75 14-16 15.2 Cheap
Forward P/E 12.61 -- 14.0 Cheap
P/B 1.76 2.0-2.5 2.1 Cheap
P/S 0.39 0.4-0.5 0.5 Cheap
EV/EBITDA 10.0 9-11 10.5 Fair
FCF Yield 4.1% 4-6% 3.8% Attractive
Dividend Yield 2.0% 1.2-1.5% 1.5% Elevated

Intrinsic Value Estimates

Method 1: Graham Number

Graham Number = sqrt(22.5 * EPS * BVPS)
             = sqrt(22.5 * $25.14 * $197.84)
             = sqrt($111,942)
             = $334

Method 2: Discounted Cash Flow (Conservative)

  • Normalized FCF: $6.0B (historical average, excluding 2024-2025 Medicaid issues)
  • Growth rate: 5% (below historical 7.5% revenue CAGR for conservatism)
  • Terminal multiple: 12x FCF
  • Discount rate: 10%
  • Shares outstanding: 222M
Year FCF ($B) Discounted
2026 6.30 5.73
2027 6.62 5.47
2028 6.95 5.22
2029 7.29 4.99
2030 7.66 4.76
Terminal 91.9 57.1
Total -- $83.3B
Per Share -- $375

Method 3: Normalized Earnings Multiple

  • Normalized EPS: $30 (management's 12% growth target from $33 base)
  • Normal P/E for quality insurer: 14-16x
  • Fair value range: $420-$480

Valuation Summary:

Method Fair Value Current Discount
Graham Number $334 -3% (overvalued)
DCF (Conservative) $375 +8% upside
Earnings Multiple $450 +30% upside
Average $386 +12% upside

Entry Price Targets

Scenario P/E Price % Below Current
Strong Buy 10x $250 -28%
Accumulate 12x $300 -13%
Current 13.75x $346 --
Fair Value 15x $377 +9%

5. Catalysts Analysis (Klarman Framework)

Positive Catalysts (12-18 months)

  1. Medicaid Rate Catch-Up (Q2-Q4 2025)

    • States adjusting rates to reflect higher acuity
    • Margins expected to improve throughout 2025
    • Could add $2-3 EPS as MLR normalizes

  2. Carelon Growth Inflection

    • CarelonRx specialty pharmacy acquisitions scaling
    • External customer wins in Carelon Services
    • Target: 20%+ revenue growth in segment

  3. Medicare Advantage Enrollment Growth

    • Guided 7-9% MA membership growth for 2025
    • Better retention from benefit stability
    • Aging demographics structurally supportive

  4. Potential Healthcare Defensive Rotation

    • Seth Klarman's +114% position increase suggests smart money rotating
    • Healthcare typically outperforms in late-cycle/recession

Negative Catalysts

  1. Medicaid Margin Deterioration

    • Rates continue to lag costs
    • Additional membership losses

  2. Medicare Rate Cuts

    • CMS continues cutting MA rates
    • Stars rating declines affect rebates

  3. Political/Regulatory Headlines

    • DOJ investigation escalation
    • Congressional hearings on prior authorization

6. Investment Thesis

Bull Case ($450+, 30% upside)

  • Medicaid margins fully recover in 2026
  • Carelon becomes meaningful earnings driver (15-20% of operating income)
  • Healthcare defensive positioning works as economy weakens
  • Management executes on 12% EPS growth target
  • Multiple re-rates to 16-18x as execution proves out

Base Case ($375-400, 10-15% upside)

  • Medicaid margins improve but remain below historical levels
  • Steady commercial execution with modest growth
  • Medicare Advantage grows in line with market
  • Carelon meets targets but doesn't exceed
  • Dividend grows 5-8% annually

Bear Case ($250-280, 20-30% downside)

  • Medicaid margins remain depressed through 2026
  • Medicare Advantage rate cuts accelerate
  • Carelon integration issues, margin drag
  • Competitive pressure from UnitedHealth intensifies
  • Political/regulatory headline risk materializes

7. Recommendation

Rating: WAIT

Rationale:

  • Quality healthcare business with narrow moat (BCBS brand)
  • Currently trading near fair value (~12% upside to conservative DCF)
  • ROE compression from 17% to 13% is concerning
  • Medicaid issues are likely temporary but timing uncertain
  • Seth Klarman's position increase is positive signal
  • Requires greater margin of safety given execution risks

Action Plan:

  1. Add to watchlist - Monitor quarterly for Medicaid margin improvement
  2. Begin accumulating at $300 (13% below current, 12x earnings)
  3. Aggressive buying at $250 (28% below current, 10x earnings)
  4. Full position at $220 (10% FCF yield, strong margin of safety)

Position Sizing: 2-3% portfolio allocation (defensive, lower conviction)

8. Key Metrics to Monitor

Metric Current Target Significance
Medical Loss Ratio 88.5% <87% Margin health
Medicaid Margins Below target 2-4% Rate adequacy
Medicare Advantage Growth 7-9% 7-10% Demographics
Carelon Revenue Growth 20%+ 15-20% Diversification
ROE 12.9% >15% Quality check
FCF/Share ~$14 >$25 Cash generation

Sources

  • AlphaVantage MCP: Financial statements, company overview, historical prices
  • Q4 2024, Q3 2024, Q2 2024, Q1 2024 Earnings Call Transcripts
  • Company investor presentations and SEC filings
  • Industry reports on managed care

Analysis conducted using Warren Buffett/Charlie Munger/Seth Klarman value investing framework. This is not investment advice. Do your own research and consult a financial advisor.