Elevance Health's Diversified Model: A Beacon of Resilience in a Cost-Pressed Healthcare Sector

Elevance Health (NYSE: ELV) is set to release its Q2 2025 earnings on July 17, marking it the first major insurer to report amid sector-wide cost pressures. With revenue projected to surge 11.4% year-over-year to $48.13 billion, the company's results will be closely watched as a bellwether for an industry grappling with rising medical costs and regulatory headwinds. But can Elevance's diversified business model—spanning insurance, pharmacy, and home health—position it as a resilient investment play compared to peers like UnitedHealth Group (UNH)? Let's dig into the data.

The Revenue Engine: Growth Amid Pressure

Elevance's top-line momentum is undeniable. The company's strategic acquisitions, particularly in its CarelonRx pharmacy division and home health services, have driven robust revenue streams. The Carelon segment's operating income is expected to jump 14.1% year-over-year, fueled by prescription drug sales and value-based care contracts. Meanwhile, Medicare Advantage (MA) membership grew 12.4% in Q1 2025, offsetting Medicaid declines.

Yet, this growth comes at a cost. The medical cost ratio—the proportion of revenue spent on benefits—has surged to 88.4%, up from 86.3% in Q2 2024. This inflation in healthcare utilization, particularly in home health and prescription drugs, is squeezing margins. Operating income for Elevance's core Health Benefits segment is projected to fall 12.4% year-over-year, a stark contrast to Carelon's expansion.

The Diversification Advantage

Elevance's strategy diverges sharply from UnitedHealth, which reported a 25% Q2 EPS drop due to soaring MA costs and reimbursement cuts. While UNH's Optum division (accounting for over 50% of revenue) undergoes a costly turnaround, Elevance's Carelon division is a growth engine, not a drag.

The key differentiator? Elevance's balanced revenue streams. While 60% of its revenue still comes from insurance, the remaining 40% is increasingly non-insurance: Carelon's pharmacy and home health services, digital health platforms like Sydney Health, and supplemental benefits programs. This diversification reduces reliance on volatile government programs like Medicaid, which saw membership drop 135,000 in Q2.

Legal and Regulatory Risks: Navigating the Storm

Both companies face legal challenges. Elevance is battling a securities fraud lawsuit alleging insufficient disclosure of Medicaid risks, while UnitedHealth grapples with a Medicare fraud investigation that could result in fines or operational restrictions.

Elevance's risk here is twofold: a potential valuation hit if the lawsuit drags on and enrollment disruptions if Medicaid members flee. However, the company's 60% re-enrollment rate among Medicaid-eligible users using its digital tools hints at resilience. UnitedHealth's issues, meanwhile, are deeper: its Optum division's cost overruns and CMS reimbursement cuts to MA plans (via the V28 rule) could prolong margin pain.

Valuation: A Discounted Play?

Elevance trades at a 14.2x forward P/E, below its five-year average of 15.6x and slightly cheaper than UnitedHealth's 12–13.7x multiple. However, Elevance's long-term growth trajectory—projected revenue of $272 billion by 2029—gives it a potential edge. Analysts see a 4.1% EPS rise in 2025, while UnitedHealth's EPS is expected to rebound only in .

Investment Thesis: Hold for the Long Game?

Elevance is not without risks. Its margins face acute sensitivity to healthcare cost trends—a 1% rise in the benefit ratio could slash EPS by $0.37. Yet, its diversified model offers a buffer. Carelon's scalability, MA's steady growth, and digital tools to retain Medicaid members position it better than peers reliant on single revenue streams.

For investors, Elevance's valuation and 2.9% dividend yield (vs. UnitedHealth's 1.6%) make it a compelling “hold” play. The stock's historical performance—71% win rate over 10 days post-earnings—supports a wait-and-see approach.

Conclusion: Resilience Requires Patience

Elevance Health's Q2 results will test its ability to navigate margin pressures while capitalizing on Carelon's growth. While short-term risks like legal battles and Medicaid volatility linger, the company's diversification and long-term strategies suggest it could outperform peers like UnitedHealth in a cost-driven sector. Investors seeking a healthcare play with growth and stability should consider Elevance—but brace for volatility as the industry's cost crisis unfolds.

Final recommendation: Hold Elevance for its diversified strengths, but monitor margin trends and legal outcomes closely.