Elevance Health Inc (ELV)

Conclusion

Elevance Health is a US health benefits company. It runs health plans for employer groups, individuals, Medicare and Medicaid members, and operates pharmacy services through CarelonRx and care services businesses. At a price of 418.25 USD on 2026-11-09, its market capitalisation is 90.4 billion USD.

The verdict is undervalued. Today's P/E of 17.6 sits slightly above its ten-year median of 17.1, but EV/EBITDA of 9.4 is well below its median of 12.7, and P/FCF of 13.9 is below its median of 17.3. The DCF gives 698.94 USD per share at a discount rate of 8.9%. The fair value band runs from 488.07 to 732.10 USD with a midpoint of 610.09 USD, a margin of safety of 45.9% at the current price. The fair value from historical multiples is 521.24 USD. The reverse DCF implies growth of 1.0% a year, against revenue growth of 10.3% over five years. Free cash flow per share, however, fell at 17.8% a year over the same five years. These are estimates built on fixed assumptions, not a price target.

What holds the case up: free cash flow conversion of 126.8% on a trailing basis, return on invested capital of 16.6% against a WACC of 7.7%, and net debt to EBITDA of -0.80. What could break it: operating margin of 3.7% against a ten-year median of 5.9%, interest coverage of 6.5 that is on watch, and the five-year decline in free cash flow per share.

Financial health

Financial strength is green, held up by net debt to EBITDA of -0.80 (a net cash position), a current ratio of 1.47, a quick ratio of 1.34 and an Altman Z-score of 3.04. Debt to equity is 0.69. Interest coverage of 6.5 on a trailing basis is neutral and on watch. The Altman model was designed for manufacturers, and Elevance is not one, so its safe zone is indicative only. Insolvency risk: low, about 0.5% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31.

Earnings quality

Earnings quality is green. Free cash flow conversion is 126.8% on a trailing basis and 97.9% over five years. The accrual ratio is 0.0115, and stock-based compensation is 0.12% of revenue, leaving free cash flow after stock compensation of 6.27 billion USD. The share count fell at 2.7% a year over five years, which points to buybacks. The Piotroski score is 5 of 9, neutral. The Beneish M-score is not available. Over the last eight quarters the company beat earnings estimates six times and missed twice, with an average surprise of 14.98%. Current-year estimates rose 7.3% over 90 days, with 20 upward revisions and none downward in the last 30 days. Next-year estimates rose 2.2% over 90 days.

Profitability

Profitability is yellow. Gross margin of 36.6% is well above its ten-year median of 25.5%. Operating margin of 3.7% is below its median of 5.9%, and net margin of 2.6% is below its median of 3.8%. Operating margin stability is 0.1354. The strongest number is return on invested capital of 16.6% against a WACC of 7.7%, a difference of 8.9% as given, with a five-year median ROIC of 12.4%. Return on equity of 11.5% is less impressive once the DuPont split is read: net margin of 2.84%, asset turnover of 1.64 and an equity multiplier of 2.77. Leverage therefore contributes meaningfully to the return on equity.

Growth

Growth is green, driven mainly by revenue. Revenue compounded at 8.3% over three years, 10.3% over five and 9.7% over ten, and grew in all ten of the last ten years. Earnings per share compounded at 1.7% over three years, 7.3% over five and 10.5% over ten. Free cash flow per share fell at 21.7% a year over three years and 17.8% over five, while it rose 1.1% a year over ten. Consensus next-year earnings per share growth is 3.9%.

Valuation

Valuation is green. Against ten-year medians, the P/E is 17.6 against 17.1, a premium of 2.8%. EV/EBITDA is 9.4 against 12.7, a discount of 26.2%. P/FCF is 13.9 against 17.3, a discount of 19.8%. P/B is 2.0 against 2.4, a discount of 16.4%. The DCF gives 698.94 USD per share at a discount rate of 8.9%, with 58.7% of that value in the terminal value. The reverse DCF implies growth of 1.0% a year, against revenue growth of 10.3% over five years. The fair value band of 488.07 to 732.10 USD is an order of magnitude built on fixed assumptions, not a price target. The dividend yield is 1.66%, the forward yield is 1.62%, and the payout on free cash flow is 23.0%.

Risks

Several weak numbers would hurt in specific ways. An operating margin of 3.7% against a median of 5.9% leaves little room for cost pressure, since small changes move profit. Interest coverage of 6.5, on watch, means less cushion if borrowing costs or earnings shift. If free cash flow per share keeps falling at the five-year pace, the reverse DCF reading would look too generous. A Piotroski score of 5 of 9 is only middling. The Beneish M-score is not available. This analysis has limits: there is no debt maturity schedule and no revenue by segment, so refinancing timing and segment mix cannot be judged. The DCF and fair value rest on fixed assumptions, including a 5% equity risk premium and capped growth.