ELV · Q4 2025 Earnings

Bearish

Elevance Health

Reported January 28, 2026

30-second summary

Elevance closed FY25 at $30.29 adjusted EPS (above the ~$30 guide) but framed FY26 as a deeper trough than Q3's setup implied: adjusted EPS guided at least $25.50 with total operating revenue down low-single digits and premium revenue down mid-single digits. The $25.50 floor sits ~$1.50 below the $27 normalized baseline management itself anchored in Q3 — meaning even after stripping FY25's ~$3 of discrete favorables, FY26 is guided down another ~5.6%. Management reaffirmed "at least 12% adjusted EPS growth in 2027," explicitly positioning FY26 as the trough; investor credibility on that algorithm is now the central question.

Headline numbers

EPS

Q4 FY2025

$3.33

Revenue

Q4 FY2025

$49.30B

+9.6% YoY

Operating margin

Q4 FY2025

0.6%

Key financials

Q4 FY2025

Metric	Q4 FY2025	YoY	Q3 FY2025	QoQ
Revenue	$49.30B	+9.6%	$50.10B	-1.6%
EPS	$3.33	—	$6.03	-44.8%
Operating margin	0.6%	—	2.6%	-200bps

Guidance

Company guides FY2026 revenue decline (low to mid single digits) and adjusted EPS at least $25.50 with modestly elevated benefit expense ratio; FY2025 beat prior adjusted EPS guidance of $30.00.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Adjusted Diluted EPS	FY 2025	approximately $30.00	$30.29	+$0.29 above guide	Beat
Benefit Expense Ratio	FY 2025	approximately 90.0%	90.0%	in-line	Beat

New guidance

Metric	Period	Guide	YoY
Total Operating Revenue	FY 2026	$197.6 billion with low single digit decline expected	—
Premium Revenue	FY 2026	$164.6 billion with mid single digit decline expected	—
Adjusted Diluted EPS	FY 2026	at least $25.50	—
GAAP Diluted EPS	FY 2026	at least $22.30	—
Benefit Expense Ratio	FY 2026	90.2% +/- 50 bps	—
Adjusted Operating Gain	FY 2026	at least $6.8 billion	—
Operating Cash Flow	FY 2026	at least $5.5 billion	—
Diluted Shares Outstanding	FY 2026	219–220 million	—

Segment KPIs

Q4 FY2025

Segment	Q4 FY2025	YoY
Health Benefits	$41.8B	+11.3%
CarelonRx	$11.6B	+16.7%
Carelon Services	$7B	+47.1%

Other KPIs

Q4 FY2025

Segment	Q4 FY2025
Medical Membership	45.2 million
Medicare Advantage Membership	2.23 million
Medicaid Membership	8.5 million
CarelonRx Adjusted Scripts (Quarterly)	88.5 million
Benefit Expense Ratio	93.5%
Operating Expense Ratio	11.0%
Adjusted Operating Margin	0.8%
Days in Claims Payable	41.3 days

Management tone

Q2 contrition → Q3 "invest into the trough" with $27 baseline → Q4 "FY26 is the trough, $25.50 is the floor, 2027 is the recovery."

The $27 baseline got cut to $25.50, and management didn't walk investors through the bridge in the release. Three months ago, management explicitly anchored 2026 modeling at $27 (FY25 $30 less ~$3 of discrete favorables) and previewed a ~$1 investment headwind plus 125bps Medicaid margin step-down. A naive build off those inputs lands at roughly $24-26. The "at least $25.50" floor is consistent with the low end of that math — but the press release positions it as a strategic recalibration ("Reaffirming long-term earnings algorithm; recalibrating segment margin targets") rather than acknowledging that earnings power has been re-baselined down ~$5 in two years. The contrition of Q2 ("revising guidance for the second consecutive year is disappointing") is gone; in its place is a confident reaffirmation of the long-term 12% algorithm off a much lower base. Whether the buyside accepts that framing is the central credibility question.

From "no near-term recovery assumed" (Q2) to "2027 inflection with multiple independent levers" (Q4). Josh Raskin pressed management on what gives them confidence in the 2027 recovery given two years of misses; the answer was that the path is not predicated on any single assumption — pricing, care management, portfolio repositioning, and Carelon are all framed as independent earnings levers. This is a meaningful posture shift from Q3's narrower "we are investing into the trough" framing. The implicit message: FY26 is deliberately conservative to capture operating leverage in 2027. The risk: every reset over the past two years was also framed as the trough.

Medicare Advantage attrition reframed from competitive concern to strategic choice. MA membership guided down high-teens percent in 2026 — a steeper-than-expected decline. Management was explicit in Q&A (Andrew Mock, Barclays) that attrition is concentrated in PPO and non-competitive HMO products and that the deliberate exits will drive at least 200bps of Medicare margin improvement. This is a substantively different message than the "disciplined exits affecting ~150k members" language of Q3; the book is being meaningfully restructured. If the margin improvement materializes, this is the cleanest 2027 lever in the portfolio.

Medicaid framed as bilateral repair, not rate catch-up. Lance Wilkes asked about the rate outlook; management's answer combined a mid-single-digit composite rate increase for 2026 (still lagging trend) with constructive state conversations on benefit redesign (behavioral health, ABA, program integrity). The Medicaid margin target for 2026 is approximately negative 1.75%, a further step-down from FY25's ~negative 50bps and worse than the Q3-implied "at least 125bps decline." This is the negative revision the release does not foreground.

Q&A highlights

A.J. Rice · UBS

Are cost trend assumptions in 2026 guidance similar to 2025 experience, or does management expect trends to worsen or improve across commercial, Medicaid, Medicare, and exchanges?

Management expects elevated but stable trends in large group commercial; accelerating trends in ACA due to subsidy expiration; Medicaid cost pressure at roughly twice historical average but with moderation to mid-single-digit range; Medicare higher reported trend driven by membership mix shift to DSNP.

Medicaid cost trend expected in mid-single-digit percent range in 2026Medicaid trend roughly twice historical average but moderating from 2025ACA trend accelerating as enhanced subsidies expireCommercial large group cost patterns and margins consistent with 2025

Andrew Mock · Barclays

Can you explain the larger-than-expected membership declines in Medicare during AEP and detail the composition of commercial risk membership declines between ACA and employer group?

Medicare declines were deliberate portfolio actions focused on margin sustainability; majority attrition in PPO and non-competitive HMO products; expected to achieve at least 2% Medicare margin improvement in 2026. Commercial employer group expected down in high-single-digit percent range driven by pricing discipline, particularly on low-margin public sector accounts.

Medicare Advantage membership expected to decline in high-teens percentage range in 2026Medicare margin improvement expected to at least 2% in 2026Employer group risk membership expected down in high-single-digit percent rangeDeliberate exits focused on lower-margin and non-competitive products

Justin Lake · Wolf Research

Can you expand on drivers of fourth-quarter health benefits margins that came in better than expected, and provide color on 2026 margin guidance assumptions for exchanges and Medicare Advantage?

Q4 Medicaid margins benefited from favorable prior period development and modest retroactive rates; Medicare margins in line with prudent 2025 bid assumptions; commercial large group margins consistent with expectations. 2026 outlook incorporates continued pressure in Medicaid offset by Medicare Advantage improvement and better ACA performance. First quarter will include approximately 20 basis points headwind from flu seasonality.

Medicaid Q4 margins slightly better than prior October outlookMedicare Q4 margins inclusive of IRA-driven Part B seasonality in line with expectations2026 guidance incorporates 20 basis points first-quarter flu headwindCommercial large group cost patterns and margins consistent with 2025

Lance Wilkes · Bernstein

What is the Medicaid rate outlook for 2026, and how should investors think about rate expectations, state program changes, and opportunities for medical management going forward?

Management expects mid-single-digit percent composite rate increase in 2026 net of risk corridor impacts; final rates received from January states (one-third of premium) in line with expectations but still lagging trend. Rate discussions increasingly tied to broader program changes and benefit design modifications. Management engaged in constructive conversations with states and implementing targeted cost management actions around behavioral health, ABA, and program integrity.

Composite rate increase expected in mid-single-digit percent range for 2026January rates from states in line with expectations but still lagging trendRates will continue to lag 2026 cost trend despite modest improvement versus historical levelsFederal One Big Beautiful Bill Act legislation expected to impact Medicaid eligibility and acuity

Josh Raskin · Nefton Research

What specific factors give management confidence to reaffirm the long-term 12% plus EPS growth target starting in 2027, given the elevated trends experienced over the past two years?

Management confidence based on prudent 2026 outlook ($25.50+ guidance) with key earnings levers already in motion across pricing, care management, and portfolio repositioning. 2026 intentionally conservative, setting up operating leverage capture into 2027. Path not predicated on single assumption but driven by multiple independent levers across commercial, Medicare, Carillon, and Medicaid disciplined execution.

2026 adjusted EPS guidance of at least $25.50Expected return to at least 12% adjusted EPS growth in 2027 off 2026 baselineConfidence driven by multiple independent earnings levers, not single assumptionKey actions underway in pricing discipline, care management, and portfolio optimization

Answers to last quarter's watch list

Q4 BER bridge to FY ~90% — Q4 printed 93.5% but FY landed at 90.0%, in line with guide. The Q4 BER ran above the FY average as expected on seasonality plus continued Medicaid acuity, with the FY bridge delivered partly via favorable prior period development called out in Q&A. Status: Resolved positively on the FY guide; the Q4 print itself was at the high end of seasonal expectations.

2026 EPS range off the $27 baseline — Management introduced a 2026 floor at $25.50 adjusted EPS (GAAP at least $22.30), reaffirmed the long-term 12%+ adjusted EPS growth algorithm anchored to 2027, and described 2026 as the trough. The floor sits ~$1.50 below the $27 normalized baseline management themselves laid out in Q3 — meaning the implied bridge has worsened. Status: Resolved negatively — the range arrived, and the floor is below the buyside's Q3 anchor math.

Medicaid Q4 exit rate — Q4 Medicaid margins came in slightly better than Q3's outlook with favorable PPD and modest retroactive rates. But the 2026 Medicaid margin target was set at approximately negative 1.75%, materially worse than the FY25 ~negative 50bps base and below Q3's "at least 125bps step-down" framing. Status: Resolved negatively — Q4 itself was fine, but the 2026 Medicaid baseline is worse than Q3 implied.

Carelon Services deceleration — +47.1% YoY in Q4 vs +57.9% in Q3 vs +63.7% in Q2 — the third consecutive step-down, now meaningfully closer to the 30-40% range. Segment operating margins were not separately disclosed in the press release. Status: Continue monitoring — deceleration confirmed, segment margin disclosure still missing.

ACA enhanced subsidy outcome and membership re-pricing — Management confirmed in Q&A that ACA cost trend is accelerating as enhanced subsidies expire and that 2026 pricing reflects this. ACA-specific membership disclosure for 2026 was not broken out in the release. Status: Continue monitoring

Medicare Advantage margin trajectory — MA membership now guided down high-teens % in 2026 with at least 200bps of margin improvement targeted, driven by deliberate exits from PPO and non-competitive HMO. The reset is sharper than Q3's "~150k members" framing implied, but the margin upside is also more concrete. Status: Resolved positively on clarity of margin path; the membership reset itself is larger than expected.

What to watch into next quarter

Q1 2026 BER print vs the 90.2% ± 50bps FY guide: management flagged ~20bps of Q1 flu headwind. Watch whether Q1 prints inside 90.5-91.0% (consistent with guide and flu seasonality) or above 91.0% (suggesting the FY guide will need to be re-cut for the third straight year).

Whether the "at least $25.50" FY26 EPS floor gets raised, held, or quietly trimmed at Q1: $25.50 is positioned as conservative. A Q1 raise would meaningfully rebuild credibility on the 2027 12% algorithm; a hold or trim with the third consecutive year of cuts would be regime-defining for the multiple.

Medicare Advantage margin progress against the "at least 200bps" 2026 improvement target: the membership reset is steeper than expected (high-teens % decline). Watch whether Q1/Q2 MA margin disclosure shows margin expansion consistent with the deliberate-exit narrative, or whether the smaller book runs at flat margins (which would invalidate the strategic-repositioning framing).

Medicaid margin trajectory vs the ~negative 1.75% 2026 target: this is worse than the Q3 implied bridge. Watch the Q1 and Q2 prints — and watch whether the mid-single-digit composite rate increase for 2026 actually narrows the rate-trend gap or whether further deterioration forces another guide cut.

Operating cash flow conversion: FY26 OCF guided at least $5.5B (up from $4.3B FY25) despite revenue decline. Watch H1 2026 cash flow for evidence the working capital and earnings quality improve as guided — OCF below adjusted operating gain has been a persistent disconnect.

Carelon Services growth floor: third consecutive YoY deceleration (+63.7% → +57.9% → +47.1%). Watch whether Q1 prints above or below 40% YoY, and whether the company begins disclosing Carelon Services operating margin separately as the segment scales.

Sources

Elevance Health Q4 FY2025 Earnings Release: https://www.sec.gov/Archives/edgar/data/1156039/000115603926000006/a4q2025elvearningsrelease.htm
Elevance Health Q4 FY2025 earnings call Q&A excerpts (extracted)

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