Institutional Validators Affirm Elevance Recovery Thesis Through Q3 Portfolio Builds

Institutional Validators Give Elevance Recovery Thesis a Vote of Confidence#

The market's four per cent decline in ELV shares on the day of the third-quarter earnings announcement in October now reads as a purchasing opportunity—at least according to two of America's most respected value investors. The third-quarter 2025 institutional portfolio filings reveal that Seth Klarman's Baupost Group and Bill Ruane's Sequoia Fund have substantially increased their exposure to the managed care operator in the weeks following management's cautious guidance on the 2026 profit trough. Klarman's aggressive doubling of his ELV position—a 114 per cent increase to 1.32 million shares—is a particularly pointed endorsement, signalling that the legendary investor has moved from scepticism about near-term profitability to conviction that the turnaround narrative will deliver value well before the anticipated 2027 normalisation. For institutional investors still debating whether to endure the 2026 margin pressure, these moves from two guardians of disciplined capital allocation provide crucial reassurance that Elevance is not a value trap but rather a deeply mispriced opportunity for those with patience.

Conviction in the Face of Uncertainty#

The scale of Klarman's commitment underscores the gap between his analysis and the market's initial reading of the October earnings call. Following the company's disclosure that elevated Medicaid medical costs will persist through 2026 as the "low point" for profitability, institutional sellers exited positions or reduced holdings, pricing in the risk that structural headwinds might prove durable. Klarman, by contrast, purchased 703,000 additional shares, pushing his total stake to 1.32 million shares with a value exceeding $426 million—now representing 8.95 per cent of his overall portfolio. This is not a token show of support but rather a concentration bet that reflects his belief that management has properly diagnosed and priced the near-term challenge whilst securing the strategic repositioning that will sustain long-term earnings power.

Ruane Cunniff's move, whilst less aggressive in percentage terms, carries equal strategic weight. The Sequoia Fund manager acquired 352,628 additional shares, increasing his position by 32.18 per cent to 1.45 million shares worth $468 million and representing 7.75 per cent of Sequoia's portfolio. Cunniff's discipline is legendary—the fund does not chase momentum—yet here he is adding to a position precisely when the Street is ambivalent about near-term earnings. This convergence of two distinct value investing traditions, Baupost's contrarian opportunism and Sequoia's patient capital, suggests that something meaningful has shifted in how sophisticated investors are pricing the recovery thesis.

The Medicaid Narrative Gains Institutional Endorsement#

What Klarman and Cunniff appear to be validating is not the headline earnings beat of third quarter—the market had already absorbed that—but rather management's willingness to anchor expectations around a 2026 profit "low point" and defend the thesis that recovery will arrive in 2027. In October's earnings call, chief financial officer Mark Kaye declined to provide 2026 guidance, citing the need for clarity on policy variables including the expiration of enhanced Affordable Care Act subsidies. That opacity rattled some investors, who read it as management's loss of confidence. Yet seasoned value investors like Klarman understand that such caution often signals honesty rather than weakness: management is not trying to manage expectations downward to deliver beats later, but rather acknowledging genuine uncertainty whilst maintaining conviction in the long-term trajectory.

The Medicaid challenge that management flagged in October remains structural. Following the unwinding of continuous COVID-era enrolment provisions, states redetermined eligibility and sicker, more medically intensive populations remained on the rolls. Behavioural health costs and new obesity treatments—particularly GLP-1 drugs—have escalated across the government-backed insurance universe. Elevance's Medicaid membership fell 3.1 per cent year over year, but the unit economics deterioration is far more severe: the health benefits segment saw operating gains plunge 62.5 per cent despite a 10 per cent revenue increase. Yet this is precisely the sort of near-term pain that value investors exploit when they believe management has a credible plan for normalisation. Klarman and Cunniff's moves signal their assessment that the company's pivot toward Medicare Advantage and its aggressive Carelon platform investments will, over time, offset the Medicaid drag and generate the margin recovery management has promised for 2027.

Carelon as Strategic Inflection Point#

Platform Economics and Patient Capital Conviction#

The institutional buying is also a statement of confidence in Elevance's capacity to deploy capital toward higher-margin, non-insurance revenue streams at precisely the moment when insurance profitability is compressed. The Carelon division—the company's pharmacy and healthcare services platform—served 97.6 million consumers in the third quarter and is growing at 33 per cent in revenue terms. Yet its operating margin remains lean at 3 per cent, a deliberate sacrifice of short-term profitability for market share and scale. The conventional critique of this strategy is that the company is cannibalising earnings today to bet on an uncertain platform future whilst simultaneously facing insurance margin pressure.

Klarman and Cunniff's willingness to increase exposure suggests they are not convinced by this critique. Instead, their moves imply a view that Carelon's scale economics will compound over a five to ten year horizon and that the current margins, whilst thin, demonstrate the company's ability to execute on integration and operational leverage. This is the hallmark of patient, long-term capital: accepting near-term margin compression and reinvestment intensity because the underlying competitive position and market opportunity justify the bet. When a value investor like Klarman doubles a position, he is implicitly saying he has war-gamed the downside scenario—management fails to stabilise Medicaid, recovery delays, Carelon economics disappoint—and concluded the odds still favour the thesis. That is not a reckless bet; it is a statement of conviction born from disciplined analysis.

Institutional Positioning and the January Catalyst#

The timing of the institutional accumulation also carries significance. Both Klarman and Cunniff completed their purchases after the market had fully digested the October earnings and guidance. The ELV share price on the date of the earnings announcement was approximately $318; current levels near $326 suggest modest repricing higher, yet well below the pre-announcement consensus of $340. The institutional buyers are essentially signalling that at $326 and with the 2026 trough now explicitly acknowledged, the risk-reward profile has inverted in the company's favour. Management will issue 2026 formal guidance in January; that pronouncement will be the market's next inflection point and the true test of whether institutional conviction proves justified.

For investors contemplating whether to maintain or increase their own ELV holdings, the portfolio actions of Klarman and Cunniff provide a useful data point. These are not momentum traders or thematic investors chasing trends; they are practitioners of disciplined, analytical value investing who have explicitly chosen to concentrate capital on the Medicaid recovery and Carelon diversification theses at a moment when patience is being tested. The January guidance announcement will be closely watched for evidence of stabilisation in Medicaid medical loss ratios and confirmation of the 2027 recovery timeline. Should management signal further deterioration in unit economics, the institutional conviction signalled today could evaporate quickly. Yet if the data confirms management's thesis that 2026 represents the genuine trough, the institutional buying today will appear prescient and could catalyse a broader repricing of the stock toward the pre-earnings consensus.

Outlook#

The January Inflection Point Ahead#

ELV remains a story of strategic merit constrained by cyclical cost pressures. The company's willingness to explicitly call 2026 the profit "low point" demonstrates management's confidence in the recovery thesis, yet it also requires institutional investors to tolerate extended margin compression through the following year. The third-quarter institutional portfolio filings show that two major value investors have examined the evidence and concluded the thesis merits meaningful capital allocation, signalling that the repricing dynamic may have already begun in October when both managers increased their stakes. Management will issue formal 2026 guidance in January, an announcement that will serve as the market's definitive inflection point for the turnaround thesis and the catalyst that either validates or invalidates the positioning undertaken by Klarman and Cunniff in recent weeks.

Confirmation of the recovery timeline would validate the institutional positioning and trigger broader institutional interest in the managed care turnaround narrative, potentially accelerating the repricing toward pre-announcement valuation levels and vindicating the patient capital thesis. The earnings guidance issuance in January will be scrutinised for explicit quantification of the Medicaid medical loss ratio trajectory, expected normalisations in healthcare cost inflation, and clarity on the 2027 earnings profile. If management can demonstrate that the worst of the cost crisis has passed and that unit economics are stabilising, the repricing could be swift and substantial, rewarding early institutional buyers and signalling to other investors that the temporary profitability trough is indeed finite.

Risk Framework and Monitoring Priorities#

The near-term risks are equally material to the upside opportunity. Should management signal further deterioration in Medicaid unit economics or delays the expected recovery beyond 2027, the recent institutional buying could expose these sophisticated investors to downside repricing risk and serve as a cautionary tale about value trap dynamics in the managed care sector. The regulatory environment around Medicaid reimbursement rates and policy uncertainty surrounding potential changes to ACA subsidy structures remain potential wildcards that could derail the recovery thesis if political dynamics shift unexpectedly. Institutional investors monitoring ELV positions should track Medicaid claims data and regulatory signals closely in December and January to assess the conviction thesis independently before committing capital to the turnaround narrative.

For now, the filings suggest that patient capital is positioning for a 2027 inflection point with meaningful conviction, betting that January guidance will vindicate the longer-term thesis of margin normalisation and justify the capital concentration undertaken today by Klarman and Cunniff. The institutional positioning provides a natural backstop to downside risk; should the thesis prove incorrect, the massive stakes held by these sophisticated investors would likely trigger accelerated selling rather than patient accumulation. Conversely, validation of the recovery timeline would signal to broader institutional investors that the repricing opportunity remains intact and that the October selloff represented a genuine opportunity to accumulate at attractive valuations ahead of the multi-year earnings recovery.