By Sriparna Roy and Sneha S K
July 15 (Reuters) – Elevance Health raised its annual profit forecast after beating second-quarter earnings estimates on Wednesday, but its shares declined more than 11%, as the revision fell short of investors’ lofty expectations.
Wall Street analysts said the magnitude of the increase in the outlook was less than the quarterly earnings beat, sparking a sector-wide selloff.
Shares of peer Molina fell more than 4%, while Centene, Oscar and UnitedHealth slipped between 6% and 2%.
Elevance raised its profit forecast by 25 cents to be at least $27 per share, after beating quarterly earnings per share expectations by $1.24.
Expectations were elevated heading into the quarter, said Baird analyst Michael Ha.
BIG BEAT, SMALLER RAISE
Elevance kicked off the second-quarter earnings season for health insurers. Larger rival UnitedHealth reports its results on Thursday.
Given the rally in stocks since the first quarter a small beat and raise is unlikely to be satisfactory for the market, said Jefferies analyst David Windley.
Higher demand for healthcare services among members of government-funded plans has increased medical expenses for health insurers.
Elevance, which has greater exposure to commercial insurance and Medicaid plans for low-income Americans, has been withdrawing from underperforming Medicare Advantage markets for older adults.
For the quarter, Elevance reported a medical loss ratio – the percentage of premiums spent on medical care – of 89.7%. Analysts had expected a ratio of 90.15%, according to data compiled by LSEG.
FOCUS ON MEDICAID
Medicaid plans have come under added pressure from policy changes. As U.S. states re-determined Medicaid eligibility, many healthier members left the rolls, leaving a sicker population with greater medical needs. Funding constraints and changes to Medicaid work rules have compounded those challenges.
“Our Medicaid operating margin outlook remains appropriately prudent and unchanged from our prior guidance,” said CEO Gail Boudreaux.
The company expects to exit additional Medicaid markets over the next 12 to 18 months, where it does not see a path to sustainable performance.
Analysts on average were expecting an annual profit of $26.86 per share, according to data compiled by LSEG.
Elevance’s quarterly adjusted profit per share of $7.45 surpassed estimates of $6.21.
The insurer expects to return to at least 12% adjusted profit growth in 2027.
(Reporting by Sriparna Roy and Sneha S K in Bengaluru; Editing by Maju Samuel)
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