Adjusted earnings of $6.99 a share included a net benefit of $1.85 that the company says is not operating. The company raised its full-year floor to at least $29 from at least $27, close in size to that benefit.
Elevance Health delivered a very large earnings surprise on Wednesday. Investors looked inside it and shrugged.
The insurer reported third-quarter adjusted earnings of $6.99 a share, up from $6.03 a year earlier, against a consensus of about $4.70 from FMP. That is a beat of about 49%. But the company said results included a net non-operating benefit of $1.85 a share, which the chief financial officer described on the call as mainly investment valuation adjustments, partly offset by state tax items. Without it, adjusted earnings were $5.14, about 9% above the estimate. Chief Financial Officer Mark Kaye said operating outperformance was about 50 cents a share.
The quality of the beat
The benefit expense ratio, the share of premiums paid out for medical care, was 90.6%, an improvement of 70 basis points, driven by Medicare Advantage and individual ACA plans. The adjusted operating expense ratio rose 90 basis points to 11.3%. Operating revenue was $50.4 billion, up 0.7% from a year earlier, and medical membership fell by 487,000 to about 44.9 million, with Medicaid attrition partly offset by growth in commercial fee-based business.
The guidance
Elevance raised its 2026 outlook. Adjusted earnings are now expected at least $29.00 a share, up from at least $27. Diluted earnings under generally accepted accounting principles are expected at least $22.00. Operating cash flow is expected at least $6.5 billion.
The increase of about $2 in the floor is close in size to the $1.85 non-operating benefit in the quarter, but the pieces do not line up one for one. The chief financial officer put operating outperformance at about 50 cents, and the company also raised the 2026 earnings baseline it uses to measure 2027 growth by 75 cents, to at least $26.75, so part of the forecast change reflects operating results and not only the quarter's investment gains.
The company also reiterated at least 12% adjusted earnings growth in 2027 from that higher baseline.
The stock
Elevance shares were up 0.11% at $440.65 at about 1:46 p.m. Eastern, from a close of $440.18. They traded in a wide range, from $426.13, down 3.2%, to $450.69, up 2.4% and a 52-week high. Managed care peers were lower: UnitedHealth was down 0.9%, Centene 0.9%, Humana 0.5% and CVS 0.6%.
Two readings
One reading is that the market is looking past a one-time accounting item to a stronger operating trend. Medical costs improved, margins in Medicare Advantage and the exchanges recovered, and the 2027 growth target signals confidence.
The other reading is that the headline was always going to be discounted. A beat built on investment valuation adjustments does not recur, membership is shrinking, and operating expenses rose faster than revenue.
What to watch
Molina reports Wednesday evening, a read on Medicaid costs; Medicaid cost trends and membership into 2027; margins in Medicare Advantage and the exchanges; and whether investment gains reverse. Fourth-quarter operating earnings without valuation adjustments would show how much of the full-year raise is durable.