The US healthcare system continues to move away from a fragmented, fee-for-service model toward a more integrated, value-based structure. In that shift, companies that can control both the financing and delivery of care have a structural advantage.
Elevance Health is positioned squarely in that transition. The market, however, remains focused on the near term, especially management's guidance that 2026 will be a trough year. That has kept the stock subdued. But the more important point is this: the investment case is not about surviving 2026. It is about what Elevance can earn once Carelon begins operating at closer to peer-level efficiency. That is the real thesis.
To value Elevance properly, the earnings base first has to be normalized. Fiscal 2025 reported adjusted diluted EPS of $30.29, but that included about $3.75 of non-recurring favorable items, mainly tax-related benefits. Stripping those out gives a normalized 2025 baseline of roughly $26.54.
Against that backdrop, management's 2026 guidance of at least $25.50 looks more like a tactical reset than a structural decline. The company is flushing out lower-quality business and setting up a cleaner earnings base.
The two main pressures are straightforward. Medicaid margins are expected to be weak as state reimbursement lags the higher acuity of post-redetermination members. At the same time, Elevance is exiting unprofitable Medicare Advantage geographies, which should pressure membership in the near term but improve the quality of the remaining book.
The result is a year that looks weak on the surface, but one that also de-risks the stock by setting a floor during a period of regulatory and utilization uncertainty.
If 2026 explains the near term, Carelon explains the upside.
Carelon is Elevance's services platform and its attempt to build the kind of vertically integrated model that has helped peers such as UnitedHealth and Cigna generate stronger margins. In 2025, Carelon produced $71.7 billion in revenue, up 33% year over year. But its adjusted operating margin was only 4.8%, and it declined from the prior year.
That is not the bear case. That is the opportunity.
The gap is the key. If Carelon's margin moves from 4.8% to 6.5%, still a conservative level relative to peers, the math becomes meaningful:
That is the point investors should focus on. The upside does not require a large new revenue opportunity. The revenue base already exists. The reward comes from better execution on that base: improved pricing, better mix, more risk-based services, and stronger operating efficiency.
Within Carelon, the split is already visible. CarelonRx is moving closer to peer-like margins, while Carelon Services still has room to improve. The story is less about building something new and more about refining what is already in place.
Management has reiterated a long-term EPS growth target of roughly 12% annually. That may look ambitious against a weak 2026, but the pieces begin to make sense when the margin bridge is laid out.
Beyond Carelon, Elevance still has room for broader margin recovery across the enterprise. Consolidated operating margin is around 3.8%, while the target range appears closer to 5.0% to 6.0%.
Even a 100 basis point improvement on a projected $200 billion revenue base would translate into:
When that broader improvement is combined with Carelon's margin potential, the path to double-digit EPS growth looks less like optimism and more like execution. 2026 may be the trough, but 2027 is where the business starts to show its full earnings power.
At around 13x forward earnings, Elevance is already offering a solid base return. That means the shareholder starts with an earnings yield of roughly 7.7%, before any growth is added.
From there, the return case has three parts:
That is the key framing. This is not just a recovery trade. It is a business where investors are being paid to wait, while the earnings base expands and the valuation potentially normalizes.
Despite the near-term pressure, institutional ownership remains high, and recent 13F filings suggest that several sophisticated investors are still adding exposure.
Manning & Napier Advisors increased its position significantly. Assetmark expanded its stake. Caprock initiated a new position. Norges Bank disclosed a large new holding. Artisan Partners also reported a substantial position.
The common thread is clear: some long-term investors appear willing to look through the 2026 trough and focus instead on the margin and earnings opportunity beyond it.
Elevance currently trades at roughly 13x forward earnings, which is well below its historical average. That discount reflects uncertainty around 2026, especially medical cost trends and regulatory pressure.
But if earnings normalize and margins improve as outlined above, even a return to the 5-year average multiple of about 17.7x could imply a valuation in the $450 to $480 range. Independent DCF estimates also point to a meaningfully higher intrinsic value.
That means the market is still pricing Elevance as a trough story, while the investment case is really about what the company earns after the trough.
Elevance is not just a managed care company navigating a difficult year. It is a services-driven healthcare platform still working through the margin optimization of its most important asset. Carelon already has the scale. What it lacks today is peer-level efficiency. If that gap narrows, the earnings upside is meaningful, the owner return becomes attractive, and the valuation can rerate. That is why 2026 matters, but only as a setup. The real story is what happens after it.