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

Elevance Health, Inc. ELV, like most peers in the health benefits space, is contending with pressure from rising medical cost trends in ACA plans, slower Medicaid rate recovery, and higher utilization, prompting a reduction in its 2025 outlook. In the first half of the year, benefits expense surged nearly 18% to more than $72 billion, while cost of products sold climbed almost 19% to $10.3 billion.

The second-quarter benefit expense ratio reached 88.9%, up 260 basis points year over year. Elevance now projects a full-year ratio of about 90%, versus 88.5% in 2024. This leaves a smaller share of premiums after paying claims, compressing margins. However, growth in the commercial segment and Carelon operations should offer support.

Commercial individual memberships rose 9.7% in the first half of 2025, following a 25.6% increase in 2024. The broader commercial business, typically enjoying higher margins, is expected to sustain its expansion. Carelon’s expanding value-based care model and pharmacy services will also provide a stabilizing influence.

In the CarelonRx unit, growing adjusted scripts and acquisitions should drive performance, while operational gains in Carelon Health will aid the Carelon Services arm. Diversification efforts have boosted Carelon’s overall revenue contribution, with segment growth of 12.4% in 2024 and a 36.8% jump in the first half of 2025. For full-year 2025, we expect it to advance nearly 30%, fueled by about 60% growth in Carelon Services alone.

Together, Elevance’s commercial strength and Carelon’s diversified growth could help counterbalance margin pressures from elevated medical costs and funding challenges in government programs.

How ELV’s Peers Are Suffering?

Companies like UnitedHealth Group Incorporated UNH and Centene Corporation CNC are also facing the brunt of rising medical costs.

UNH’s medical care ratio was 89.4% in the second quarter, which deteriorated 430 bps from the year-ago period. UnitedHealth reported Q2 adjusted EPS of $4.08, which missed the Zacks Consensus Estimate of $4.84. Meanwhile, Centene’s health benefits ratio of 93% deteriorated 540 basis points year over year in the second quarter and came above the consensus mark of 90.82%. Centene reported adjusted loss per share of 16 cents in the second quarter, which missed the Zacks Consensus Estimate of earnings of 68 cents.

Elevance’s Price Performance, Valuation and Estimates

Shares of ELV have lost 20.7% in the year-to-date period compared with the industry’s decline of 3.9%.

From a valuation standpoint, Elevance trades at a forward price-to-earnings ratio of 9.19, down from the industry average of 14.57. ELV has a Value Score of A at present.

The Zacks Consensus Estimate for Elevance’s 2025 earnings is pegged at $30.59 per share, implying a 7.4% decline from the year-ago period.

The stock currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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