Offshore

⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: Last week, after reporting strong quarterly results, $ELV traded down to an attractive level of valuation. As I stated in my analysis:

“As you can see, $ELV has attractive CAGR potential if we assume a >13.5x multiple (below its 14.00x 5-year mean & below its 14.21x 10-year mean)

This assumption is MORE than reasonable for a business that’s growing earnings at a >10% rate & has a strong history of linear earnings growth ( $ELV has increased EPS annually since 2008 🎯)

***I also like the negative price correlation $ELV can have, relative to tech, in the short-term … adding a layer of safety in a portfolio***

In short, $ELV appears to be a worthwhile consideration at $500💵”
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I want to RE-EMPHASIZE this point:

***I also like the negative price correlation $ELV can have, relative to tech, in the short-term … adding a layer of safety in a portfolio***

Since last week’s post ‼️

Nasdaq: -3.80% 🔴 $QQQ
Elevance: +7.29% 🟢 $ELV
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#stocks #investing"

A sober valuation analysis on $ELV 🧘🏽‍♂️

•NTM P/E Ratio: 12.61x
•5-Year Mean: 14.00x

•NTM FCF Yield: 6.28%
•5-Year Mean: 7.00%

As you can see, $ELV appears to be trading somewhere near fair value

Going forward, investors can expect to receive ~11% MORE in earnings per share & ~10% LESS in FCF per share🧠***

Before we get into valuation, let’s take a look at why $ELV is a quality business

BALANCE SHEET✅
•Cash & Equivalents: $6.50B
•Total Investments: $37.15B
•Long-Term Debt: $24.56B

$ELV has a strong balance sheet, an A S&P Credit Rating & 7.83x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2019: 12.3%
•2020: 14.7%
•2021: 14.3%
•2022: 13.6%
•2023: 14.7%
•LTM: 14.6%

RETURN ON EQUITY✅
•2019: 16.0%
•2020: 14.1%
•2021: 17.7%
•2022: 16.3%
•2023: 15.8%
•LTM: 16.6%

$ELV has solid return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $71.02B
•2023: $171.34B
•CAGR: 9.20%

FREE CASH FLOW✅
•2013: $2.41B
•2023: $6.77B
•CAGR: 10.88%

NORMALIZED EPS✅
•2013: $8.52
•2023: $33.14
•CAGR: 14.54%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 303.80M
•LTM Shares Outstanding: 234.95M

By reducing its shares outstanding ~22.6%, $ELV increases its EPS by ~29.1% (assuming 0 growth)

MARGINS🆗
•LTM Gross Margins: 9.4%
•LTM Operating Margins: 6.1%
•LTM Net Income Margins: 3.9%

PAID DIVIDENDS✅
•2013: $1.50
•2023: $5.92
•CAGR: 14.71%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~11% MORE in EPS & ~10% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $ELV has to grow earnings at a 6.31% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be greater than the (6.31%) required growth rate:

2024E: $37.27 (12.4% YoY) *FY Dec
2025E: $41.71 (11.9% YoY)
2026E: $47.00 (12.7% YoY)

$ELV has a great track record of meeting analyst estimates ~2 years out, so let’s assume $ELV ends 2026 with $47.00 in EPS & see its CAGR potential assuming different multiples

15x P/E: $705.00💵 … ~16.0% CAGR

14x P/E: $658.00💵 … ~12.9% CAGR

13.5x P/E: $611.00💵 … ~11.3% CAGR

13x P/E: $611.00💵 … ~9.7% CAGR

As you can see, $ELV has attractive CAGR potential if we assume a >13.5x multiple (below its 14.00x 5-year mean & below its 14.21x 10-year mean)

This assumption is MORE than reasonable for a business that’s growing earnings at a >10% rate & has a strong history of linear earnings growth ( $ELV has increased EPS annually since 2008 🎯)

I also like the negative price correlation $ELV can have, relative to tech, in the short-term … adding a layer of safety in a portfolio

In short, $ELV appears to be a worthwhile considerat[...]

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