Morgan Stanley has initiated coverage on Elevance Health Inc (NYSE:ELV), an American health insurance provider formerly Anthem Inc, citing compelling risk-reward.
Related: Elevance Health Clocks $2.2B Q1 Net Profit Despite 21% Drop In Medicaid Enrollment, Lifts Annual Guidance.
The analyst writes that Elevance Health's story is centered on its resilience through diversified offerings, balancing its presence in the growing Medicare Advantage segment with its Commercial and Medicaid segments.
This balance helps Elevance withstand regulatory challenges in Medicare Advantage and macroeconomic cycles affecting Commercial.
Additionally, the potential for growth in its Pharmacy Benefit Management (PBM), Specialty Pharmacy, and Carelon Services is undervalued, with various factors supporting continued strong earnings growth.
Morgan Stanley writes, "As a relatively more diversified MCO, ELV benefits from not being over-indexed to one particular line of business, offering it enhanced stability across its Health Benefits segment, while unique drivers as it scales Carelon should, in aggregate support higher visibility on +DD earnings growth longer term."
Elevance boasts one of the most diversified Health Benefits (InsurCo) offerings, only second to industry bellwether UnitedHealth Group Inc (NYSE:UNH).
Elevance's shares have risen 13.3% year-to-date, compared to the S&P 500's 14.6% increase and a 9.9% decline in diversified managed care organizations (MCOs).
Morgan Stanley says the growth is attributed to the company's consistent performance across its diversified portfolio, despite challenges in areas like Medicare Advantage.
Further potential for growth due to the resilience of its benefits business and the scaling of its Carelon platform, the analyst adds.
Currently, Elevance's shares are trading at 13.6 times the next twelve months (NTM) price-to-earnings (P/E) ratio, which is in line with its historical average and slightly below the 14.0 times the P/E ratio of its diversified peers.
The analyst initiates with an Overweight rating and a price target of $643, which is higher than the historical 10-year NTM average of 13.8 times, but still below the 10-year NTM average of 18.0 times for industry leader UnitedHealth.
Morgan Stanley writes the undervaluation unjustified given its diverse and growing portfolio.
Price Action: ELV shares are up 1.01% at $539.84 at last check Monday.
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