Elevance Health (ELV): Strong And Steady EPS Growth Ahead, High Relative Strength Name

What a year it was for the Health Care sector. The Health Care Select Sector SPDR ETF (XLV) finished near the flat line in 2022, besting the S&P 500 Trust ETF (SPY) by more than 20 percentage points. Investors generally see the space as featuring decent earnings growth during what could be a year of negative per-share change for the broad market. Many large caps in Health Care sport have strong relative strength.

One name hiked its guidance for the coming year in October and has been a winner. But is the valuation still ok with Elevance Health? Let’s check it out.

Health Care Worked in 2022. Will It Do So Again?

According to Bank of America Global Research, Elevance Health (NYSE:ELV) is one of the largest managed care organizations in the U.S. with offerings in the commercial (large and small employer), Medicare, Medicaid, and individual markets. The company operates Blue Cross & Blue Shield plans in 14 states. It supports consumers, families, and communities across the entire care journey connecting to the care, support, and resources to lead healthier lives. It serves approximately 118 million people through a portfolio of medical, digital, pharmacy, behavioral, clinical, and care solutions.

The Indiana-based $122.5 billion market cap Managed Health Care industry company within the Health Care sector trades at a slight valuation premium to the broad market at 20.1 times its GAAP earnings (trailing) and pays a 1.0% dividend yield, according to The Wall Street Journal. A growing services segment should help support strong bottom-line growth in the years ahead. It was recently named one of Goldman Sachs’ bullish picks for 2023. Downside risks include Medicaid redetermination changes and increased competitive pressures.

On valuation, analysts at BofA see earnings having risen impressively in 2022 with continued strong per-share profit growth in 2023 and 2024. The Bloomberg consensus earnings forecast is about on par with what BofA sees. Dividends, meanwhile, are expected to continue to remain low. Given strong EPS advancement, both the operating and GAAP earnings multiples are seen as falling into the mid-teens. Overall, with a forward PEG ratio around 1.4, the stock appears to be a decent value given its growth prospects.

Elevance: Earnings, Dividend, Valuation Forecasts

Looking ahead, corporate event data from Wall Street Horizon show a confirmed Q4 2022 earnings date of Wednesday, January 25 BMO. The calendar is light on volatility catalysts aside from the earnings event.

Corporate Event Calendar

The Options Angle

Data from Option Research & Technology Services (ORATS) show a consensus per-share profit forecast of $5.20 in its upcoming quarterly report. The stock has somewhat low implied volatility right now, near 28%, so the at-the-money straddle using the closest-expiring options to the January earnings date prices in a rather small 3.9% earnings-related stock price swing. The stock beat bottom-line estimates in the two previous quarters while shares traded lower in the July quarter and higher post-reporting in October. Overall, options appear cheap.

Low Implied Volatility Heading Into Earnings

The Technical Take

ELV has traded sideways since April last year, with a minor bearish false breakout in November. Sellers have emerged a few times now in the $533 to $550 range, but the stock’s long-term 200-day moving average is rising, which is a bullish feature. While I would like to see the stock rally above $550 on volume to help confirm a bullish breakout, Elevance has a history of poking through resistance only to stumble. Still, with robust relative strength, the technical picture is generally favorable. Swing traders could wait for a pullback to support in the mid-$400s.

ELV: Sideway Price Action, But Outperforming

The Bottom Line

I like the growth situation with ELV. Health Care is a spot that should weather economic storms better than other areas in 2023. This company has steady EPS growth ahead as the stock continues to outperform the broad market. I like it here.