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Anthem (ANTM) Q3 Earnings Miss, Revenues Beat Estimates

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Anthem Inc.’s third-quarter 2016 adjusted of $2.45 per share missed the Zacks Consensus Estimate of $2.49 by 1.6%. The bottom line also declined 10.3% year over year.

Operating revenues of $21.1 billion surpassed the Zacks Consensus Estimate of $20.7 billion. It also increased 6.8% year over year, led by a 6.9% growth in premiums revenue and 24.8% growth in net investment income.

Medical enrollment that grew by 3.1% over the prior year quarter on the back of solid growth in n Medicaid business.

Total expense increased nearly 8% year over year to $20.3 billion in the reported quarter due to 9.4% rise in benefit expenses, 5% increase in interest expenses and 2.4% rise in general and administrative expenses, all on year-over-year basis.

Anthem’s benefit expense ratio was 85.5% in the reported quarter, up 190 basis points (bps) year over year.

Segment Results

Commercial & Specialty Business

At the end of the third quarter, operating gain increased 3% year over year to $637.7 million. Lower administrative costs due to expense-efficiency initiatives and the timing of lower medical cost experience in the Local Group business drove the upside. However, higher medical cost experience in the Individual business and the reduction in fully insured membership of the Local Group business were partial offsets.

Government Business

At the end of the third quarter, operating gain was $478.9 million, down 23.6% year over year. Higher medical cost experience resulted in the downside. Nevertheless, it was partially offset by lower administrative costs resulting from expense-efficiency initiatives by Anthem.

Other

Anthem’s operating loss of $38.5 million in this segment was 60% wider from the operating loss of $23.9 million in the prior-year quarter. The wider loss primarily stemmed from acquisition-related expenses for Cigna.

ANTHEM INC Price, Consensus and EPS Surprise

 

Financial Update

As of Sep 30, 2016, Anthem had cash and cash equivalents of $2.5 billion, up 19% from  year-end 2015.

Long-term debt of Anthem decreased 7.2% to $14.2 billion as of Sep 30, 2016 from $15.3 billion in  year-end 2015. As of Sep 30, 2016, shareholder equity was $24.7 billion, up 7.4% from the end of 2015.

Operating cash flow was $964 million. The reported figure was 1.6 times the net income in the reported quarter.

Share Repurchase and Dividend Update

Anthem did not repurchase any shares during the third quarter of 2016 due to the pending acquisition of Cigna. As of Sep 30, 2016, the company had nearly $4.2 billion of share repurchase authorization left.

In the reported quarter, Anthem paid a quarterly dividend of 65 cents per share.

Guidance for 2016

Anthem affirmed  adjusted net income of about $10.80 per share.. However net income is now expected to be nearly $9.28 per share, lower that $9.34 projected earlier.

Anthem raised its guidance for medical membership to the range of 39.65–39.85 million, from the earlier range of 39.6–39.8 million.. The projection for fully insured membership is increased to the range of 15-15.1 million from the range of 39.6–39.8 million, along with the anticipation for self-funded membership that made higher to the range of 24.65–24.75 million from the range of 24.6–24.7 million.

Operating revenues are projected around $83.5 billion against the range of $82.5–$83.5 billion guided previously.

Benefit expense ratio and SG&A ratio are expected to be around 84.9% and 14.5% respectively with adjustment of 30 basis points plus or minus similar to the previous projection.

Anthem continues to expect operating cash flow in excess of $3 billion in 2016.

Zacks Rank and Performance of Other Insurers

Anthem presently carries Zacks Rank #4 (Sell). 

Among the other firms in the medical sector that have reported their third-quarter earnings so far, the bottom line at Aetna Inc. , Molina Healthcare Inc (MOH - Free Report) and UnitedHealth Group Inc. (UNH - Free Report) beat their respective Zacks Consensus Estimate.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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