Anthem (ANTM) Up 7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Anthem (ANTM). Shares have added about 7% 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 Q2 Earnings Beat, Membership Declines, View Up

Anthem Inc. came up with earnings of $4.25 per share, which surpassed the Zacks Consensus Estimate of $4.19. Earnings were up 26% year over year. Better-than-expected results were driven by strong medical cost performance.

Anthem posted revenues of $22.71 billion, a tad shy of the Zacks Consensus Estimate of $22.75 billion. The top line was up 2.3% year over year, driven by premium increases and the return of the health insurance tax in 2018 as well as acquisitions, partially offset by a reduced footprint in the Individual marketplace.

Quarterly Operational Update

Medical enrollment declined 2.2% year over year to 39.5 million members. The downside was primarily caused by a reduced footprint in the Individual ACA (Affordable Care Act)-compliant marketplace.

Anthem’s benefit expense ratio of 83.4% improved 270 basis points (bps) from the prior-year quarter, driven by the return of the health insurance tax in 2018 and improved medical cost performance across all its business segments.

SG&A expense ratio of 15.1% deteriorated 130 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 growth initiatives.

Strong Segment Performance

Commercial & Specialty Business

Operating revenues were $9.2 billion in the first quarter, down 11.1% year over year.

Operating gain totaled $1.05 billion, up 8.8% year over year led by improved medical cost performance, partly offset by contraction on insurance exchanges and higher investment expenses.

Operating margin was 11.5%, up 271 bps year over year.

Government Business

Operating revenues were $13.5 billion, up 14% from the prior-year quarter.

Operating gain was $537.4 million, up 83.2% year over year. The upside reflects the impact of the HealthSun and America's 1st Choice acquisitions as well as organic membership growth in the Medicare business.

Operating margin was 4%, up 150 bps year over year.

Other

Operating revenues were $8.9 million, up 53.4% from the prior-year period.

The segment reported an operating loss of $31.2 million, narrower than the same of $34.2 million in the prior-year quarter.

Financial Update

As of Jun 30, 2018, Anthem had cash and cash equivalents of $4.68 billion, up 29.8% from year-end 2017.

As of Jun 30, 2018, its long-term debt increased 0.8% to $17.5 billion from year-end 2017.

Operating cash outflow was $2.8 billion in the quarter under review, down 10.6% year over year.

Share Repurchase and Dividend Update

During the reported quarter, Anthem repurchased 1.7 million shares of its common stock for $400 million.

As of Jun 30, 2018, it had approximately $6.4 billion of share repurchase authorization remaining.

During the quarter, Anthem paid a quarterly dividend of 75 cents per share.

Guidance for 2018

Anthem expects adjusted net income to be greater than $15.40 per share, up from the previous projection of more than $15.30.

Medical membership is now expected in the range of 39.9-40.1 million, down from the previous projection of 40.1-40.3 million.

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

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

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Anthem has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

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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