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Anthem's (ANTM) Beats Q1 Earnings on Increased Revenues

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Anthem Inc.’s first-quarter 2017 adjusted net income per share of $4.7 surpassed the Zacks Consensus Estimate of $3.8 by 23.7%. The bottom line also surged 35.3% year over year.

 

 

Operating revenues of $22.3 billion beat the Zacks Consensus Estimate of $21.3 billion. The top line also grew 9.9% year over year due to premium rate increases as well as higher enrollment in the Medicaid, Medicare, and Local Group insured and self-funded businesses.

Medical enrollment increased 2.6% year over year to 40.6 million members. The increase in enrollment were primarily recorded by the Local Group, Individual, and National businesses.

Total expense increased nearly 10.7% to $21 billion in the reported quarter, mainly due to a 13% rise in benefit expenses and 26% higher interest expenses, all on a year-over-year basis.

Anthem’s benefit expense ratio of 83.7% deteriorated 190 basis points (bps) from the prior-year quarter. This was largely due to the one-year waiver of the health insurance tax in 2017. Higher medical cost experience in the Medicaid business is another reason for the deterioration.

The SG&A expense ratio of 14.3% improved 150 bps from the year-ago quarter. This was primarily driven by the one-year waiver of the health insurance tax in 2017, the impact of lower administrative costs associated with expense efficiency initiatives, and fixed cost leverage from higher operating revenues.

Segment Results

Commercial & Specialty Business

Operating gain was $1.3 billion in the first quarter, up 0.7% from first-quarter.

The was due to the net impact of premium rate increases in the Individual business and an improved SG&A ratio associated with expense efficiency initiatives taken by Anthem.

Government Business

Operating gain was $318.6 million in the first quarter, down 2% from the prior-year quarter. The decrease may be attributed to higher medical cost experience in the Medicaid business and the one-year waiver of the health insurance tax in the 2017 Medicaid contract.

Other

Anthem reported an operating loss of $35.6 million for the first quarter, which narrowed 25% from the prior-year quarter loss. The improvement was primarily driven by lower expenses related to the Cigna acquisition.

Anthem, Inc. Price, Consensus and EPS Surprise

 

Anthem, Inc. Price, Consensus and EPS Surprise | Anthem, Inc. Quote

Financial Update

As of Mar 31 2017, Anthem had cash and cash equivalents of $6.8 billion, up 66.2% from year-end 2016.

As of Mar 31, 2016, long-term debt of Anthem increased 7.7% to $15.4 billion from year-end 2016.

As of Mar 31, 2016, shareholder equity was $26.1 billion, up 4% from year-end 2016.

Operating cash flow was $2.7 billion, or 2.7 times net income, in the first quarter.  This reflects year-over-year growth of 100%.

Share Repurchase and Dividend Update

During the first quarter, Anthem repurchased 0.3 million shares of its common stock for $51 million. As of Mar 31, 2017, the company had approximately $4.1 billion of board-approved share repurchase authorization remaining.

During the quarter, Anthem paid a quarterly dividend of 65 cents per share, which represents a cash distribution of $172.2 million.

On Apr 25, 2017, the Audit Committee declared second-quarter 2017 dividend of 65 cents per share. On an annualized basis, this equates to a dividend of $2.60 per share. The second-quarter dividend is payable on Jun 23, to shareholders on record at the close of business on Jun 9, 2017.

Guidance for 2017

Anthem expects adjusted net income to be greater than $11.60.

Medical membership is expected in the range of 40.2– 40.4 million. Fully insured membership and self-funded membership are likely to be in the band of 15.2–15.3 million and 25–25.1 million, respectively.

Operating revenues are projected in the range of$88.0–$89.0 billion.

Benefit expense ratio and SG&A ratio are expected to be around 87% and 13.6%, respectively, with adjustment of 30 bps.           

Anthem expects operating cash flow to be greater than $3.5 billion, excluding the potential cash payments related to the Penn Treaty assessments during 2017.

Zacks Rank and Stocks to Consider

Anthem presently carries Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other firms in the medical sector that have reported earnings so far, the bottom line at Centene Corp. (CNC - Free Report) , Quest Diagnostics Incorporated (DGX - Free Report) and UnitedHealth Group Inc. (UNH - Free Report) beat their respective Zacks Consensus Estimate.

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