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Anthem (ANTM) Up 9.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Anthem (ANTM - Free Report) . Shares have added about 9.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Anthem due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Anthem’s Q3 Earnings Beat, Up Y/Y

Anthem came up with earnings of $3.81 per share, which surpassed the Zacks Consensus Estimate of $3.67 by 3.8%. The bottom line also surged 43.8% year over year, driven by a solid operating performance.

Anthem posted operating revenues of $23 billion, almost in line with the Zacks Consensus Estimate. The top line was up 4% year over year, driven by premium increases and the return of the health insurance tax in 2018 along with Medicare growth. However, this upside was partially offset by a weakened footprint in the Individual ACA-compliant marketplace.

Quarterly Operational Update

Medical enrollment slipped 1.9% year over year to 39.5 million members. This downside was primarily caused by a reduced presence in the Individual ACA-compliant marketplace along with lower membership in Local Group and Medicaid.

Anthem’s benefit expense ratio of 84.8% improved 220 basis points (bps) from the prior-year quarter, aided by the return of the health insurance tax in 2018 and an improved medical cost performance across its Commercial & Specialty Business.

SG&A expense ratio of 15.4% deteriorated 180 bps from the year-ago quarter due to the return of the health insurance tax in 2018 and the impact of increased investment spend this year to support various growth initiatives.

Strong Segmental Results

Commercial & Specialty Business


Operating revenues were $912 million in the third quarter, down 9.2% year over year.

Operating gain totaled $833 million, up 55.7% year over year, led by an improved medical cost performance and reduced allocated costs compared with the figure in the same time frame of 2017.

Operating margin was 9.1%, up 380 bps year over year.

Government Business

Operating revenues were $13.8 billion, up 15% from the prior-year quarter.

Operating gain was $466 million, up 2% year over year. This uptick reflects the impact of the HealthSun and America's 1st Choice acquisitions as well as the return of the health insurance tax this year. However, the same metric was offset by increased medical expenses in the Medicaid business.

Operating margin was 3.4%, down 40 bps year over year.

Other

The Other segment generated operating revenues of $11 million, up 37.5% year over year.

This segment reported an operating loss of $50 million, wider than $10 million incurred in the year-earlier period.

Financial Update

As of Sep 30, 2018, Anthem had cash and cash equivalents of $4.26 billion, up 18% from year-end 2017.

As of Sep 30, 2018, its long-term debt dipped 0.5% to $17.3 billion from year-end 2017.

Operating cash outflow was $3.3 billion during the first nine months of 2018, down 38.7% year over year.

Capital Deployment

During the third quarter, the company paid a quarterly dividend of 75 cents per share.  Moreover, the company announced a fourth-quarter dividend of 75 cents per share on Oct 30, 2018, payable Dec 21, 2018.

The company also bought back shares worth $397 million during the quarter under review. As of Sep 30, 2018, it has a $6-billion board-approved share repurchase authorization left.

Guidance for 2018

Based on third-quarter results, Anthem has raised its outlook for 2018 adjusted net earnings. It now projects the same to be higher than $15.60 per share.

Medical membership is now expected in the range of 39.9-40.1 million, same as the previous prediction.

Operating revenues were kept unchanged in the band of $91-$92 billion.

Also, its estimates for operating cash flow of more than $4 billion were left unaltered.

The company estimates the benefit expense ratio to be 84.2%, plus or minus 30 basis points.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Anthem has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Anthem has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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