Elevance Health (ELV, Financial) (5.1% of Sequoia’s capital at year-end, +12% total stock return in 2022)
Elevance’s stock was Sequoia’s best performing stock this year, for all the same reasons that United’s stock performed well. For full- year 2022, Elevance’s revenues and EPS are expected to be up approximately 14% and 12%, respectively. Versus 2019, the company’s revenues and EPS are expected to have compounded at annual rates of 14% and 15%, respectively.
Elevance (renamed from Anthem in 2022) is, like United, primarily a managed care company. In terms of revenues and profits, it is big, but not quite as big as United. Further, it is less scaled and less diversified than United in non-insurance business lines. However, Elevance has its own strengths. It is the largest operator of for -profit Blue Cross Blue Shield plans in the country. Built up over the course of decades, these plans have unrivaled brand recognition as well as a network of provider relationships that is unique in terms of market coverage and negotiated rates.
Elevance has long been an advantaged business, but it has not always been particularly well run. In 2017, Gail Boudreaux, formerly a senior executive at United, took over the reins. She is experienced and results-oriented. We believe Boudreaux can help Elevance make more of the enviable position it has long enjoyed.
On balance, we prefer United’s business to Elevance’s. But price matters, and Elevance trades at a significant discount to United. Ultimately, we feel comfortable owning both companies. As with United, we trimmed our investment in Elevance this year on account of ever-present policy risk and in light of the fact that the price-earnings ratio had expanded significantly since Sequoia’s initial purchase.
At the current share price, Elevance trades for approximately 15x expected EPS for 2023. We consider this an attractive valuation for a business that is highly entrenched, reasonably diversified, better run than in the past, and capable of growing earnings in economically insensitive fashion and at a teens rate for several years.
From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund fourth-quarter 2022 letter.
