Elevance Health Inc

Elevance Health (ELV) was another strong contributor during the quarter, gaining 32.1%. Profitability has begun to turn the corner following a challenging period marked by elevated medical cost inflation across its government-sponsored insurance plans. While medical utilization remains elevated, cost trends have stabilized into a more predictable pattern, and government reimbursement updates were more favorable than expected. We anticipate 2026 will mark the bottom for operating margins, with disciplined repricing and better alignment between premiums and medical expenses driving an earnings recovery in 2027. Our investment thesis remains grounded in the strength of ELV’s commercial health insurance franchise, which continues to perform well and provides a durable foundation for the company’s long-term earnings power.

Elevance Health (ELV) was another strong contributor during the quarter, gaining 32.1%. Profitability has begun to turn the corner following a challenging period marked by elevated medical cost inflation across its government-sponsored insurance plans. While medical utilization remains elevated, cost trends have stabilized into a more predictable pattern, and government reimbursement updates were more favorable than expected. We anticipate 2026 will mark the bottom for operating margins, with disciplined repricing and better alignment between premiums and medical expenses driving an earnings recovery in 2027. Our investment thesis remains grounded in the strength of ELV’s commercial health insurance franchise, which continues to perform well and provides a durable foundation for the company’s long-term earnings power.

Elevance Health Inc. (ELV) is the second largest health insurer and one of the largest commercial insurers in the United States. Shares rose during the quarter after the company reported quarterly earnings that beat consensus estimates. It was further supported by news that the US agreed to increase 2027 payments for private Medicare Advantage plans above the initial proposal. The company is priced at a discount to the market, driven by skepticism surrounding margins and growth, despite being a compelling business that grows above gross domestic product while returning most of its cash to shareholders.

Elevance Health Inc. (ELV) is the second largest health insurer, and one of the largest commercial insurers in the United States. Shares rose during the quarter after the company reported quarterly earnings that beat consensus estimates. It was further supported by news that the US agreed to increase 2027 payments for private Medicare Advantage plans above the initial proposal. The company is priced at a discount to the market, driven by skepticism surrounding margins and growth, despite being a superior business that grows above gross domestic product while returning most of its cash to shareholders.

After a trying 2025 for Centene and Elevance, our conviction to stay the course with both positions has begun to pay dividends for the portfolio. Health insurers experienced a difficult period in recent years, as elevated utilization rates weighed on earnings. The industry responded with a combination of pricing and underwriting actions that have helped to stabilize profits. Notwithstanding the recent recovery in their stock prices (resulting in higher P/Es), our analysis shows that current year earnings for Centene and Elevance are still 30-50% below what may be achieved in a normalized environment.

Elevance Health Inc. (ELV) is the second largest health insurer and one of the largest commercial insurers in the United States. Shares rose during the quarter after the company reported quarterly earnings that beat consensus estimates. It was further supported by news that the US agreed to increase 2027 payments for private Medicare Advantage plans above the initial proposal. The company is priced at a discount to the market, driven by skepticism surrounding margins and growth, despite being a superior business that grows above gross domestic product while returning most of its cash to shareholders.

Elevance Health Inc. (ELV) is the second largest health insurer and one of the largest commercial insurers in the United States. Shares rose during the quarter after the company reported quarterly earnings that beat consensus estimates. It was further supported by news that the US agreed to increase 2027 payments for private Medicare Advantage plans above the initial proposal. The company is priced at a discount to the market, driven by skepticism surrounding margins and growth, despite being a superior business that grows above gross domestic product while returning most of its cash to shareholders.

We have owned Elevance for several years. Like UnitedHealth Group, their government sponsored plans including Medicaid, Medicare Advantage (MA), and the ACA Health Exchanges have faced margin pressure driven by the post-Covid hangover. Elevance is adjusting to this post-Covid environment, and we believe that its earnings should return to double-digit growth next year. Similar to UnitedHealth Group, 'Mr. Market' is beginning to recognize that Elevance’s fundamentals remain strong and its discounted shares are beginning to recover.

Elevance Health is one of the largest health insurers in the US. Despite facing pressures on margins due to rising medical costs and lower government reimbursement, we believe the long-term earnings power of the business is positive. The company has benefited from better-than-expected Medicare rate increases announced in early April, which will be helpful for the industry in closing the gap between pricing and cost trends. We are confident in Elevance's ability to navigate these challenges and maintain its strong market position.

We have owned Elevance for several years. Like UnitedHealth Group, their government sponsored plans including Medicaid, Medicare Advantage (MA), and the ACA Health Exchanges have faced margin pressure driven by the post-Covid hangover. Elevance is adjusting to this post-Covid environment, and we believe that its earnings should return to double-digit growth next year. Similar to UnitedHealth Group, 'Mr. Market' is beginning to recognize that Elevance’s fundamentals remain strong and its discounted shares are beginning to recover.