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Anthem's Membership Growth Impressive, High Debt a Drag
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On Dec 9, 2016, we have issued an updated research report on Anthem Inc. . The Indianapolis-based medical insurer is one of the largest publicly traded managed care organizations in terms of membership.
Anthem has grown its membership base through accretive acquisitions, introduction of health insurance exchanges and national accounts in the commercial segment. Moreover, expansion of its Medicaid business in the government sector has significantly contributed to the rising membership. We note that the Affordable Care Act, popularly known as ObamaCare, is largely responsible for this. For 2016, Anthem expects its medical membership in the range of 39.65–39.85 million.
Anthem’s price earnings growth ratio, which determines the relative trade-off of the price of a stock, the earnings generated per share, and the company's expected growth, is 1.40. This is better than the industry average of 1.27. The company’s efficient capital management has been largely backed by its solid cash position. In fact, with a strong third quarter, cash from operations reached $964 million, representing 1.6 times the net income at the end of first nine months of 2016. This is undoubtedly encouraging.
Also, consistent cash inflow from operations has helped the company to deploy its capital in the best way possible in order to retain shareholders’ confidence on the stock. This includes regular dividend increases and frequent share buyback activities. However, the company has not been buying back shares since last few quarters of 2016 due to the pending acquisition of Cigna.
The Zacks Consensus Estimate has witnessed upward revision during last 30 days from $1.47 per share to $1.54 per share. For the current year as well, the Zacks Consensus Estimate has moved upward, though the same for 2017 has moved down.
Despite the positives, the share price movement has not been quite favorable for the company. Year to date, Anthem shares gained just 4.62% as against the 22.04% increase of the Zacks categorized Health Maintenance Organizations industry.
YTD PRICE CHART
Anthem’s pending merger with Cigna Corp. (CI - Free Report) that has been sued by the U.S. DOJ, which is likely to have impacted the share price movement. Other than that, the continuously declining investment income, high debt levels and a weak public exchange business have added to the company’s woes.
Further, Anthem’s earnings have missed expectations in two of the last four quarters with an average miss of 0.64%. Like UnitedHealth Group Inc. (UNH - Free Report) and Aetna Inc. , Anthem too is witnessing losses on its public exchange business. For 2016, the company expects a membership decline of approximately 300,000 in its individual business. It also expects to see a mid-single-digit margin loss in 2016 in this public exchange business instead of its prior expectation of a slight profitability.
Finally, the persistent low interest rate environment has taken a toll on Anthem’s investment income. For 2015, the company experienced a 6.5% decline in net investment income from a year ago to $677.6 million. Also, the company projects net investment income of approximately $650 million for 2016, which translates into a year-over-year decline of 4% from the 2015 level.
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Anthem's Membership Growth Impressive, High Debt a Drag
On Dec 9, 2016, we have issued an updated research report on Anthem Inc. . The Indianapolis-based medical insurer is one of the largest publicly traded managed care organizations in terms of membership.
Anthem has grown its membership base through accretive acquisitions, introduction of health insurance exchanges and national accounts in the commercial segment. Moreover, expansion of its Medicaid business in the government sector has significantly contributed to the rising membership. We note that the Affordable Care Act, popularly known as ObamaCare, is largely responsible for this. For 2016, Anthem expects its medical membership in the range of 39.65–39.85 million.
Anthem’s price earnings growth ratio, which determines the relative trade-off of the price of a stock, the earnings generated per share, and the company's expected growth, is 1.40. This is better than the industry average of 1.27. The company’s efficient capital management has been largely backed by its solid cash position. In fact, with a strong third quarter, cash from operations reached $964 million, representing 1.6 times the net income at the end of first nine months of 2016. This is undoubtedly encouraging.
Also, consistent cash inflow from operations has helped the company to deploy its capital in the best way possible in order to retain shareholders’ confidence on the stock. This includes regular dividend increases and frequent share buyback activities. However, the company has not been buying back shares since last few quarters of 2016 due to the pending acquisition of Cigna.
The Zacks Consensus Estimate has witnessed upward revision during last 30 days from $1.47 per share to $1.54 per share. For the current year as well, the Zacks Consensus Estimate has moved upward, though the same for 2017 has moved down.
Despite the positives, the share price movement has not been quite favorable for the company. Year to date, Anthem shares gained just 4.62% as against the 22.04% increase of the Zacks categorized Health Maintenance Organizations industry.
YTD PRICE CHART
Anthem’s pending merger with Cigna Corp. (CI - Free Report) that has been sued by the U.S. DOJ, which is likely to have impacted the share price movement. Other than that, the continuously declining investment income, high debt levels and a weak public exchange business have added to the company’s woes.
Further, Anthem’s earnings have missed expectations in two of the last four quarters with an average miss of 0.64%. Like UnitedHealth Group Inc. (UNH - Free Report) and Aetna Inc. , Anthem too is witnessing losses on its public exchange business. For 2016, the company expects a membership decline of approximately 300,000 in its individual business. It also expects to see a mid-single-digit margin loss in 2016 in this public exchange business instead of its prior expectation of a slight profitability.
Finally, the persistent low interest rate environment has taken a toll on Anthem’s investment income. For 2015, the company experienced a 6.5% decline in net investment income from a year ago to $677.6 million. Also, the company projects net investment income of approximately $650 million for 2016, which translates into a year-over-year decline of 4% from the 2015 level.
Anthem presently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>