Initiated 2026-10-18 · Price $428.26 (as of 2026-10-16, stockanalysis.com) · Mkt cap $93.3bn (217.9mm diluted shares) · Health care / managed care (Commercial, Medicaid, Medicare Advantage, ACA; CarelonRx and Carelon Services) · Model: verified

Rating: Buy — Conviction: Low

2026 looks like the trough year. Medicaid margins are at about −1.75% and Medicare Advantage at about 2%. Management has raised its adjusted EPS guide twice, from ≥$25.50 to ≥$27, and is aiming for ≥12% growth in 2027 off a ≥$26 baseline. At ~14.7x that 2027 figure, the stock prices a slow recovery, not a return to 2023–24's 6–6.5% margins, and Carelon and an A-rated balance sheet support it. Conviction is Low because the upside depends on the discount rate and on the Gordon method, and Medicare and Medicaid funding are still policy decisions.

Conviction tests (3a-v-c): T1 fail (Buy → Hold at +1pp: Base +8.5%; +51.5% at −1pp) · T2 fail (Gordon alone +40.7% reads Buy; exit-multiple alone +11.7% reads Hold) · T3 pass · T4 pass (no pending deal, ruling or single-contract event worth >25%: the $115mm star-ratings suit and the CMS risk-adjustment matter are small against a $93bn equity; the 2026-10-21 Q3 print sits inside the cases)

Model value range vs price
Bear $246.70Base $540.50Bull $817.16Price $428.26

Business overview

Elevance, the largest Blue Cross Blue Shield licensee, has two halves. Health Benefits covers 44.9mm medical members (June 2026): 27.5mm commercial fee-based, 4.7mm commercial risk, 8.4mm Medicaid, 1.9mm Medicare Advantage, plus a growing ACA book. Carelon combines CarelonRx, the PBM, with Carelon Services, which covers behavioral health, home care and risk-based services. Carelon generated $71.7bn of FY2025 operating revenue (+33%) and $3.4bn of adjusted operating gain (+10%). Health Benefits' adjusted operating gain fell to $4.2bn from $6.3bn. FY2025 total revenue was $199.1bn, and model-basis margin, which includes investment income on the float, slid from 6.5% (FY2023) to 5.2%. Three variables drive earnings: Medicaid rates against acuity, MA funding against cost trend, and Carelon growth.

Competition

Elevance is #2 in Medicaid managed care with 10.7% of HMAIS-tracked enrollment (June 2026). Centene has 17.9%, UnitedHealth 8.0% and Molina 6.0%, and the market shrank 5.5% year on year to 59.2mm (HMA, Q2 2026). In Medicare Advantage the pressure is on quality bonuses. Elevance's unweighted average star rating slipped from 3.59 to 3.51 for 2027, behind UnitedHealthcare and Humana (Becker's, October 2026). CarelonRx competes with Optum Rx, Express Scripts and CVS Caremark. UnitedHealth, the closest diversified comparable, trades at 17.7x forward earnings and Cigna at 9.5x, against Elevance's 15.8x (stockanalysis.com, 2026-10-16).

Bull case

  1. Government margins repair from the trough — July Medicaid rate updates came in at the upper end of mid-single digits with "no new stepwise acuity reset", and MA is repositioned to a ≥2% margin after a ~16% membership cut. Plays out if January 2027 Medicaid rates beat trend and MA margin holds ≥2% under the 2027 bids. Model: ebitda_margin
  2. Carelon compounds — PBM product growth, risk-based services and CareBridge keep Carelon growing double digits. Plays out if Carelon earnings keep growing ≥10% while the Services platform investment rolls off. Model: rev_growth, ebitda_margin
  3. Re-rating on resumed growth — if 12%+ EPS growth shows up in 2027 and holds, a 12x exit and 3% terminal growth follow. Model: exit_ev_ebitda, terminal_growth

Bear case

  1. Cost trend keeps outrunning funding — management says MA cost trend still outpaces program funding. Behavioral, specialty pharmacy and outpatient use stay elevated, and work requirements hit ~20% of the Medicaid book from 2027. Plays out if Q4 2026 or 2027 guidance misses the 12% growth target. Model: ebitda_margin
  2. Shrinking government book and regulatory drag — more Medicaid exits are planned, the 2027 stars slipped, and a $935mm accrual ($4.27 a share) covers CMS risk-adjustment exposure. Growth falls to 1–3% and margin stalls near 4.5%. Plays out if Medicaid exits or MA losses outrun Carelon growth. Model: rev_growth, ebitda_margin
  3. Policy risk premium — after two years of misses, the market keeps a higher discount rate (8.5%) and an 8.5x exit, toward Cigna. Model: wacc, exit_ev_ebitda

Valuation & balance sheet

Metric (definition) Current Own history (range or 5y avg) Peers Source, as-of
EV/EBITDA, model basis (EV $122.4bn = mkt cap $93.3bn − parent cash $2.1bn + debt $31.0bn + NCI $0.1bn; EBITDA incl. investment income) 11.9x FY2025; ~13.7x 2026E ~11.2x on the FY2023–24 average ($10.96bn) at today's EV CI 8.2x · CNC 5.7x · UNH 14.1x · HUM 16.0x (aggregator TTM, all cash netted) model-inputs.json; stockanalysis.com 2026-10-16
P/E 15.8x forward (consensus); ~15.9x on the ≥$27 2026 adjusted guide; ~14.7x on ≥$29.12 (2027 ≥12% off $26) 17.0x / 16.7x / 17.0x at today's price on GAAP EPS of $25.22 / $25.68 / $25.21 (FY2023–25) CI 9.5x · CNC 14.9x · UNH 17.7x · HUM 33.3x (forward) stockanalysis.com 2026-10-16; Q2 release and call; FY2025 10-K
P/B 2.07x n/a (unverified) CI 1.87x · CNC 1.51x · UNH 3.48x · HUM 2.58x stockanalysis.com 2026-10-16
FCF yield (aggregator TTM) 6.8% n/a (unverified) CI 11.4% · CNC 26.2% · UNH 6.3% · HUM 3.9% stockanalysis.com 2026-10-16

The aggregator's 13.7x EV/EBITDA nets ~$37.5bn of mostly regulated cash against debt.

Model-implied value range (from model-summary.json; generic module, Gordon-growth DCF and exit-EV/EBITDA DCF, midpoints): Bear $246.70 · Base $540.50 · Bull $817.16 per share, i.e. implied returns of −42.4% / +26.2% / +90.8% vs $428.26. These ranges show how the bull and bear drivers translate into value; they are not price targets.

Balance sheet: net leverage 2.8x model-basis FY2025 EBITDA (gross 3.0x). Coverage 7.4x. Liquidity: ~$2.1bn parent cash and investments; ~$5.3bn of buyback authorization remains. Debt-to-capital ~41% at 2026-06-30. Nearest maturity: $375mm current portion, including the 4.500% notes due October 2026. Ratings: Moody's Baa2, S&P A, Fitch BBB+.

Model note: tier full, status built, verification verified (3,207 formula cells matched in LibreOffice). No unverified inputs and no assumptions without a basis. Scenario consistency is OK on all 14 rows.

Relative value vs peers
MetricELVUNHCICNCHUMPeer medianvs median
P/E (TTM)19.1x22.9x12.5xn/a39.0x22.9x−17%
P/E (forward)15.8x17.7x9.5x14.8x33.3x16.3x−3%
PEG4.3x1.2x0.9x0.4x1.6x1.1x+303%
EV/EBITDA (TTM)13.7x14.1x8.2x5.7x16.0x11.2x+22%
EV/Sales (TTM)0.6x0.9x0.4x0.1x0.4x0.4x+50%
P/B2.1x3.5x1.9x1.5x2.6x2.2x−7%
FCF yield6.8%6.3%11.4%26.2%3.9%8.9%−2.1pp
Dividend yield1.6%2.3%2.1%0.0%0.9%1.5%+0.2pp
P/E (TTM)HUM39.0xUNH22.9xELV19.1xCI12.5x
P/E (forward)HUM33.3xUNH17.7xELV15.8xCNC14.8xCI9.5x
PEGELV4.3xHUM1.6xUNH1.2xCI0.9xCNC0.4x
EV/EBITDA (TTM)HUM16.0xUNH14.1xELV13.7xCI8.2xCNC5.7x
EV/Sales (TTM)UNH0.9xELV0.6xHUM0.4xCI0.4xCNC0.1x
P/BUNH3.5xHUM2.6xELV2.1xCI1.9xCNC1.5x
FCF yieldCNC26.2%CI11.4%ELV6.8%UNH6.3%HUM3.9%
Dividend yieldUNH2.3%CI2.1%ELV1.6%HUM0.9%CNC0.0%

As of 2026-10-18. One source and one definition for every company: aggregator TTM and consensus-forward multiples, EV netting all reported cash (for Elevance that includes ~$37.5bn largely held in regulated subsidiaries). Not the model's own EV basis (see the report's valuation table). All figures at the 2026-10-16 close, fetched 2026-10-18 (Sunday). Dashed line = peer median. Source: stockanalysis.com /stocks/<ticker>/statistics/, fetched 2026-10-18.

Notes. Centene has negative trailing GAAP earnings (net loss $5.10bn TTM), shown as n/a by the source. PEG as given by the source, resting on its consensus growth estimates; Elevance's 4.33 reflects low consensus growth off a 2025-26 base that includes margin compression. Elevance's 13.66x nets ~$37.5bn of reported cash, most of it regulated; on the model's basis (parent cash only, investment income in EBITDA) it is 11.9x FY2025 and ~13.7x 2026E. Centene's 26.2% TTM FCF includes regulated-subsidiary operating cash flow and risk-adjustment timing; it is not parent-distributable cash. Centene pays no dividend (0).

Scenario stress test

Reasoned from the bull/bear drivers above. The model column comes from the scenario overlays (Base case + shock).

Scenario Effect Mechanism Magnitude Model Δ value vs Base ($/sh)
S1 Fast equity crash − Liquidity de-rating; claims demand unaffected Med −$26.90
S2 Slow bear / recession − Job losses shrink commercial membership, partly offset by Medicaid enrollment gains; state budgets slow rate catch-up. Far milder than the bear case, which is a permanent margin plateau, not a cycle Med −$30.87
S3 Rapid rate shock − Higher discount rate, partly offset by float reinvestment yield High −$77.72
S4 Slow rate grind − Grinding discount-rate drag; float yield rises slowly Med −$34.79
S5 Soft-landing cuts + Lower discount rate re-rates the equity; float income dips slightly High +$71.81
S6 Recession-driven cuts ± Rate relief vs commercial membership losses, state budget pressure and lower float yield Med +$33.70
S7a Credit liquidity shock − Spreads gap; A/Baa2 issuer at ~41% debt-to-capital sold modestly Med −$16.14
S7b Slow default cycle − Investment-portfolio credit losses and pricier refinancing Med −$18.14
S8 Stagflation − Medical trend outruns annually reset premiums, MA funding and Medicaid rates High −$46.02
S9a Dollar spike 0 no material effect, not modeled Low $0.00
S9b Dollar slide 0 no material effect, not modeled Low $0.00
S10 Melt-up − Momentum leadership leaves defensive managed care behind Low −$10.76
S11 Energy supply shock − Second-round provider wage and pharmacy inflation leaks into trend Low −$0.65
S12 Mega-cap/AI derating + Rotation into domestic, non-AI defensives Med +$21.52

Currently active/on watch per the playbook: S3 partially active (price-level leg only); S8, S10 and S11 on watch.

Model value change vs Base, by scenario
S3 Rapid rate shock−$77.72S8 Stagflation−$46.02S4 Slow rate grind−$34.79S2 Slow bear / recession−$30.87S1 Fast equity crash−$26.90S7b Slow default cycle−$18.14S7a Credit liquidity shock−$16.14S10 Melt-up−$10.76S11 Energy supply shock−$0.65S9a Dollar spike$0.00S9b Dollar slide$0.00S12 Mega-cap/AI derating+$21.52S6 Recession-driven cuts+$33.70S5 Soft-landing cuts+$71.81

What would change the call

Upgrades if: Q4 2026 results and 2027 guidance (~January 2027) confirm ≥12% adjusted EPS growth with Medicaid margin improving from −1.75%, and MA holds ≥2% under the 2027 bids. Downgrades if: 2027 guidance falls short of ≥12% growth off $26, Medicaid margin stays negative into 2027, the CMS risk-adjustment exposure rises above the $935mm accrual, or Carelon earnings growth drops below mid-single digits.

Watch items

Sources