Stock Analysis on Net

Elevance Health Inc. (NYSE:ELV)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Elevance Health Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 11.67%
0 DPS01 5.92
1 DPS1 6.66 = 5.92 × (1 + 12.49%) 5.96
2 DPS2 7.46 = 6.66 × (1 + 11.97%) 5.98
3 DPS3 8.31 = 7.46 × (1 + 11.45%) 5.97
4 DPS4 9.22 = 8.31 × (1 + 10.93%) 5.93
5 DPS5 10.18 = 9.22 × (1 + 10.41%) 5.86
5 Terminal value (TV5) 891.69 = 10.18 × (1 + 10.41%) ÷ (11.67%10.41%) 513.38
Intrinsic value of Elevance Health Inc. common stock (per share) $543.08
Current share price $518.54

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of Elevance Health Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.42%
Expected rate of return on market portfolio2 E(RM) 13.61%
Systematic risk of Elevance Health Inc. common stock βELV 0.79
 
Required rate of return on Elevance Health Inc. common stock3 rELV 11.67%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rELV = RF + βELV [E(RM) – RF]
= 4.42% + 0.79 [13.61%4.42%]
= 11.67%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Elevance Health Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends and dividend equivalents 1,404 1,234 1,111 961 822
Shareholders’ net income 5,987 6,025 6,104 4,572 4,807
Operating revenue 170,209 155,660 136,943 120,808 103,141
Total assets 108,928 102,772 97,460 86,615 77,453
Shareholders’ equity 39,306 36,307 36,060 33,199 31,728
Financial Ratios
Retention rate1 0.77 0.80 0.82 0.79 0.83
Profit margin2 3.52% 3.87% 4.46% 3.78% 4.66%
Asset turnover3 1.56 1.51 1.41 1.39 1.33
Financial leverage4 2.77 2.83 2.70 2.61 2.44
Averages
Retention rate 0.80
Profit margin 4.06%
Asset turnover 1.44
Financial leverage 2.67
 
Dividend growth rate (g)5 12.49%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Shareholders’ net income – Dividends and dividend equivalents) ÷ Shareholders’ net income
= (5,9871,404) ÷ 5,987
= 0.77

2 Profit margin = 100 × Shareholders’ net income ÷ Operating revenue
= 100 × 5,987 ÷ 170,209
= 3.52%

3 Asset turnover = Operating revenue ÷ Total assets
= 170,209 ÷ 108,928
= 1.56

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 108,928 ÷ 39,306
= 2.77

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.80 × 4.06% × 1.44 × 2.67
= 12.49%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($518.54 × 11.67%$5.92) ÷ ($518.54 + $5.92)
= 10.41%

where:
P0 = current price of share of Elevance Health Inc. common stock
D0 = the last year dividends per share of Elevance Health Inc. common stock
r = required rate of return on Elevance Health Inc. common stock


Dividend growth rate (g) forecast

Elevance Health Inc., H-model

Microsoft Excel
Year Value gt
1 g1 12.49%
2 g2 11.97%
3 g3 11.45%
4 g4 10.93%
5 and thereafter g5 10.41%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 12.49% + (10.41%12.49%) × (2 – 1) ÷ (5 – 1)
= 11.97%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 12.49% + (10.41%12.49%) × (3 – 1) ÷ (5 – 1)
= 11.45%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 12.49% + (10.41%12.49%) × (4 – 1) ÷ (5 – 1)
= 10.93%