02:57 PM EDT, 06/04/2024 (MT Newswires) -- Elevance Health's ( ELV ) near-term earnings outlook is "easily achievable" amid commercial repricing, pharmacy benefit manager, or PBM, insourcing and recent deals by its Carelon business, BofA Securities said Tuesday.

The health insurer is "firmly committed" to achieving its adjusted earnings per share compound annual growth rate target of 12% to 15% through 2027, Chief Financial Officer Mark Kaye said on an earnings conference call in April, according to a Capital IQ transcript. "We have confidence that through business cycles and over time, the earnings power of our health benefits in Carelon flywheel will generate the momentum and the foundation that's needed to sustain a long-term (CAGR) of at least 12%."

There's "better visibility" into higher earnings growth between 2022 and 2027, with more than 40% of the growth coming from repricing of the company's commercial business and insourcing the PBM from CVS Health ( CVS ) , BofA analyst Kevin Fischbeck said in a note. "We see a clear path to 15% growth through 2027 which slows closer to 12% thereafter unless the company can execute on some unproven expansion initiatives."

The brokerage expects the commercial repricing to drive 32% of the enterprise earnings growth from 2022 through 2027, with another 16% coming from commercial enrollment and cost trend growth. In the near term, commercial enrollment is expected to be backed by the resumption of Medicaid redeterminations, according to the note.

BofA said it sees less earnings growth within the government portion of the company's insurance businesses than the commercial part. The brokerage projects a 5% to 6% revenue and earnings CAGR from 2022 through 2027 in the government portion, with a little faster growth thereafter, aided largely by Medicare Advantage.

Within the CarelonRx segment, the firm expects revenue and earnings growth in the 11%-to-12% range over the next five years, followed by 5% to 6% from there on out. Overall, BofA sees only a small portion of the low double-digit CAGR Elevance forecasts for Carelon through 2027 coming from the core industry growth, with the bulk of the share likely coming from its insourcing initiatives.

"We see a very substantial growth opportunity within Carelon Behavioral, with the ability to grow revenue and earnings at a 20-30% CAGR through 2027, which slows to around 6% thereafter," Fischbeck wrote. "Notably, this is being driven largely by the expansion of revenue per member rather than through membership growth." Carelon services' Carelon Insights segment is likely to achieve earnings growth close to 20% for more than 10 years, according to the note.

BofA said almost all of Carelon's capabilities have come via acquisitions, suggesting that most of future growth opportunities will also come from more M&A deals. An analysis of the company's deals shows that none of them are particularly large from a revenue perspective, indicating that "smaller deals that have the ability to rapidly scale are the core part of the playbook," Fischbeck said.

The brokerage raised its price objective on the Elevance stock to $646 from $621 while reiterating its buy rating.

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