Valuation and Key Metrics
Elevance Health appears to be fairly valued, with key metrics highlighting both strengths and concerns:
P/E Ratio:
15.23, indicating a fair valuation compared to industry peers. Forward P/E of 12 suggests potential earnings growth.
PEG Ratio:
1.14, suggesting the stock is reasonably priced when factoring in growth expectations.
Free Cash Flow Yield:
Relatively low, indicating the need for improvement in cash flow generation.
Competitive Advantage (Moat)
Elevance Health has a significant economic moat, supported by an extensive provider network, brand strength, and
scale. Its broad healthcare services ensure a steady revenue stream. Risks include competition from industry giants and
regulatory changes.
Operational Efficiency
ROIC:
8.54%, which just barely exceeds the WACC of 8.5%. While positive, this does raise questions about capital efficiency.
CapEx to Cash Flow Ratio:
Low, indicating efficient capital allocation and the ability to generate returns without heavy CapEx reliance.
Financial Health and Risks
Debt-to-Equity Ratio:
0.62, reflecting moderate leverage. Debt-to-EBITDA of 2.51 indicates manageable but notable debt levels. Interest
coverage of 8.52 is strong.
Growth Potential
Dividend Yield:
1.54%, with a strong 3-year CAGR of 15.9%. The Chowder Number of 17.44 suggests robust growth prospects for
dividend investors.
DCF Valuation and Intrinsic Value
Using a WACC of 8.5% and a terminal growth rate of 2.5%, the intrinsic value is estimated at $457 per share. A margin
of safety yields a conservative buy range of $365 to $410, offering potential upside.
Conclusion
Elevance Health is a well-managed company with a solid economic moat and efficient operations. Its valuation metrics
and strong dividend growth make it attractive for long-term investors. However, potential regulatory risks and modest
returns on capital should be monitored.
The stock is a "Buy" within the safe entry range of $365 to $410.
