Yahoo Finance Who’s Trading at a Premium PE Multiple after 1Q16—Anthem or Its Peers?
Analysts Like Anthem after 1Q16, and Here's Why
PE multiples
On April 27, 2016, Anthem (ANTM) was trading at a forward PE (price-to-earnings) multiple of about 11.4x. Since January 1, 2016, the company has traded at PE multiples in the range of 9.6x–11.7x. Since July 2015, Anthem has traded at discounted multiples to those of its peers UnitedHealth Group (UNH), Aetna (AET), and Cigna (CI).
Profit margins
Despite its strong rise in Medicaid enrollments, Anthem’s profit margins suffered in 1Q16 mainly due to higher medical costs in its Medicaid and individual exchange businesses. The company has also been actively repositioning its Medicare businesses to target profitable markets.
Exiting certain unviable markets has affected Anthem’s Medicare enrollments in 1Q16. However, these initiatives have been instrumental in reducing the company’s Medicare-related expenses.
The company has also targeted its public exchange business as a potential growth opportunity. If Anthem proves successful in its exchange strategy, it will boost the company’s share prices and valuation multiples in future quarters. This is also expected to have a positive impact on the share prices of the Vanguard Large-Cap ETF (VV). Anthem makes up about 0.20% of VV’s total portfolio holdings.
Analyst recommendations
In a Bloomberg survey of 23 brokerage companies reported on April 28, 2016, about 61.9% of the analysts rated Anthem as a “buy,” while 38.1% rated it as a “hold.” No analyst rated Anthem as a “sell.”
The consensus 12-month target price for Anthem’s stock is $172.23, as compared to $144.76 on April 27, 2016, which implies a 19% return. Prominent brokers that rated the company as “outperform” include RBC Capital Markets, Leerink Partners LLC, Oppenheimer & Company, and Cowen. Jefferies, Stifel, UBS, and Sterne Agee CRT have also given ANTM a “buy” recommendation.
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