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Anthem Grows on Membership, Public Exchange Woes Hurt

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Anthem Inc is one of the largest publicly traded managed care organizations in terms of membership. Strategic acquisitions, national accounts in the commercial segment and the Medicaid expansion in the government segment have significantly boosted the company’s membership base.

Anthem’s revenues have also grown on the back of net investment income that started increasing since 2016 on the back of interest rate hikes.

The Indianapolis, IN-based company’s capital management, backed by solid cash position, also impresses.  Sufficient generation of cash flows have enabled the company to enhance shareholders’ value through several capital deployment initiatives like share repurchases, dividend payouts etc.

The company maintains a consistent record of earnings outperformance. In three of the last four quarters, Anthem’s bottom line surpassed expectations with an average beat of 8.6%. Following strong second-quarter 2017 results, the company raised its earnings and revenue guidance for 2017 that further boosts shareholders' confidence in the stock.

However, loss incurred from public exchange business continues to hurt the company’s bottom line and top line, as evident from a significant decline in enrollment in this business since 2016. Although management has been taking steps to ensure both a stable and sustainable returns from individual market, we remain cautious. Along with other health insurers like Humana Inc (HUM - Free Report) , Aetna Inc and UnitedHealth Group, Inc (UNH - Free Report) , Anthem is planning to scale back its participation on this loss-making business for 2018.

Moreover, the company’s rising level of debt not only increases financial risks but also raises interest expenses, which weighs on margins.

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