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Anthem (ANTM) Q2 Earnings: Is a Beat in Store for the Stock?

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Anthem Inc. (ANTM - Free Report) will release second-quarter 2018 results on Jul 25 before the market opens. In first-quarter 2018, the company delivered a positive earnings surprise of 12%, led by strong medical cost performance.

Let’s see, how things are shaping up for this announcement.

Anthem’s revenues have been rising over the past few quarters. We expect revenue growth in the to-be-reported quarter, driven by higher premium revenues in its Government Business segment and to a lesser extent, higher administrative fee revenues in its Commercial & Specialty Business segment. These increases will be, to a certain degree, offset by a decrease in premium revenues at its Commercial & Specialty Business segment. Per the Zacks Consensus Estimate, revenues for Government business are expected to be $13.14 billion, up 10.5% year over year and the same for the Commercial business is projected to be $9.53 billion, down 10.2% year over year.

Total medical membership for the second quarter should have witnessed a decline caused by lower Individual enrollment due to a reduction in individual membership resulting from planned exits in the ACA (Affordable Care Act)-compliant marketplace. Higher membership should be seen in Medicare business as the company is intently focusing on growing this line of business. Acquisitions of Health Sun and America's 1st Choice should have raised enrollment in the Medicare business. Per the Zacks Consensus Estimate, total membership is anticipated to be 39.7 million, down 1.7% year over year.

We also predict an increase in selling, general and administrative expense ratio as the company escalates investment in areas such as technology modernization, population and consumer digital health plus data analytics and product development capabilities.

The company must also have made two tax payments to the federal government in the second quarter, which might reduce its cash flow from operations to a great deal.

What the Quantitative Model States

Per our proven model, Anthem is likely to beat on earnings this quarter to be reported. This is because the stock has the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Anthem has an Earnings ESP of +0.48%. This is because the Most Accurate estimate is pegged at $4.21, higher than the Zacks Consensus Estimate of $4.19. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Anthem, Inc. Price and EPS Surprise

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

Zacks Rank: Anthem carries a Zacks Rank #3, which increases the predictive power of ESP.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Some other stocks worth considering from the Health Maintenance Organization industry with the perfect combination of elements to also surpass estimates in the next releases are as follows:

Centene Corporation (CNC - Free Report) is set to report second-quarter 2018 earnings on Jul 24. The stock has an Earnings ESP of +0.74% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Molina Healthcare, Inc (MOH - Free Report) is set to report second-quarter earnings on Jul 31. This #3 Ranked stock has an Earnings ESP of +3.90%.

WellCare Health Plans, Inc. (WCG - Free Report) has an Earnings ESP of +1.09%. This #2 Ranked company is set to report second-quarter earnings on Jul 31.

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