A month has gone by since the last earnings report for Anthem (ANTM). Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Anthem due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Anthem's Q1 Earnings Beat Estimates, Improve Y/Y
Anthem Inc. delivered first-quarter 2019 earnings of $6.03 per share, surpassing the Zacks Consensus Estimate by 2.9%. Additionally, the bottom line improved 11.5% year over year on the back of higher membership and the expansion of its clinical and specialty services.
Anthem reported operating revenues of $24.4 billion, beating the Zacks Consensus Estimate by 1.7%. Moreover, the top line was up 9.2% year over year, aided by membership growth across the businesses and premium rate increases to cover the overall cost trends. However, this upside was partially offset by the one-year waiver of the health insurance tax in 2019.
Quarterly Operational Update
Medical enrollment inched up 1.2% year over year to 40.8 million members, backed by the Government Business enrollment and the Commercial & Specialty Business.
Anthem’s benefit expense ratio of 84.4% expanded 290 basis points (bps) from the prior-year quarter, boosted by the one-year waiver of the health insurance tax in 2019.
SG&A expense ratio of 13% contracted 230 bps from the year-ago quarter due to the year-long waiver of the health insurance tax in 2019, growth in the operating revenues and the overall expense management.
Strong Segmental Results
Commercial & Specialty Business
Operating revenues were $9.3 billion in the first quarter, up 4.9% year over year.
Operating gain totaled $1.6 billion, up 12.6% year over year. This upside is led by an improved medical cost performance in Local Group and higher administrative fee revenues in the company’s self-funded businesses.
Operating margin was 16.9%, up 120 bps year over year.
Operating revenues were $14.9 billion, up 12% from the prior-year quarter.
Operating gain was $383 million, down 20.4% year over year due to the non-recurrence of retroactive revenue adjustments in 2018 and the continued elevated medical cost experience in Medicaid across select states. However, the same metric was offset by the reduced selling, general and administrative expenses.
Operating margin was 2.6%, down 100 bps year over year.
The Other segment’s operating loss of $16 million is narrower than the year-earlier quarterly loss of $22 million.
As of Mar 31, 2019, Anthem’s cash and cash equivalents summed $4.5 billion, up 13.9% from year-end 2018.
As of Mar 31, 2019, its long-term debt less current portion inched up 1% to $17.4 billion from the level at 2018 end.
Operating cash flow at the end of the first quarter was $1.6 billion, down 26.4% from the figure as of Dec 31, 2018.
During the first quarter, Anthem bought back shares worth $294 million. As of Mar 31, 2019, the company had shares worth around $5.2 billion remaining under its share buyback authorization.
Moreover, the company paid a quarterly dividend of 80 cents per share, adding up to a distribution of cash worth $206 million.
The company announced a dividend of 80 cents per share on Apr 23, 2019 for the second quarter, payable Jun 25 to shareholders of record on Jun 10, 2019.
Revised Guidance for 2019
Based on solid first-quarter results, Anthem has updated its outlook for 2019. The company’s adjusted net income is now expected to be higher than $19.20 per share, up from the prior projection of more than $19.
Medical membership is still estimated in the range of 40.9-41.3 million.
Operating revenues are predicted to be around $100 billion including the premium revenues of $90.5-$92.5 billion. Operating cash flow is envisioned to be higher than $5.2 billion.
SG&A ratio is forecast in the band of 13.5% (+/- 30 bps).
The company estimates the benefit expense ratio to be 86.2% (+/-30 bps).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.51% due to these changes.
Currently, Anthem has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Anthem has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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