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Anthem's (ANTM) Q4 Earnings Beat Estimates, Improve Y/Y

Zacks Equity Research

Anthem Inc. ANTM came up with fourth-quarter 2018 earnings of $2.44 per share, surpassing the Zacks Consensus Estimate by 10.9%. Additionally, the bottom line soared 89.1% year over year, driven by a solid operating performance across all core businesses.

Anthem reported operating revenues of $23.3 billion, almost in line with the Zacks Consensus Estimate. Meanwhile, the top line was up 4% year over year, aided by higher premium rates and the return of the health insurance tax in 2018 along with Medicare growth. However, this upside was partially offset by a weak footprint in the Individual ACA-compliant marketplace.

Quarterly Operational Update

Medical enrollment slipped almost 1% year over year to 39.9 million members. This downside was primarily caused by a reduced Individual ACA-compliant marketplace enrollment and a decline in Local Group enrollment.

Anthem’s benefit expense ratio of 86.8% improved 180 basis points (bps) from the prior-year quarter, boosted 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 15.5% deteriorated 40 bps from the year-ago quarter due to the return of the health insurance tax in 2018. However, the same was partially mitigated by expense efficiency initiatives.

Anthem, Inc. Price, Consensus and EPS Surprise

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

Strong Segmental Results

Commercial & Specialty Business

Operating revenues were $884 million in the fourth quarter, down 11.6% year over year.

Operating gain totaled $322 million, skyrocketing 380.6% year over year. This upside is led by an improved medical cost performance and lower general and administrative expenses.

Operating margin was 3.6%, up 290 bps year over year.

Government Business

Operating revenues were $14.4 billion, up 16.2% from the prior-year quarter.

Operating gain was $444 million, up 23.3% 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. However, the same metric was offset by escalated medical expenses in the Medicaid business.

Operating margin was 3.1%, down 20 bps year over year.

Other

The Other segment’s operating loss of $16 million is narrower than the prior-year quarter’s loss of $46 million.

Financial Update

As of Dec 31, 2018, Anthem had cash and cash equivalents of $3.9 billion, up 9% from year-end 2017.

As of Dec 31, 2018, its long-term debt dipped 0.9% to $17.2 billion from year-end 2017.

Operating cash outflow was $3.8 billion during 2018, down 8.6% year over year.

Capital Deployment

During the fourth quarter, the company paid a quarterly dividend of 75 cents per share.  Moreover, the company announced a dividend of 80 cents per share on Jan 29, 2019 for first-quarter 2019, payable Mar 29, 2018.

Anthem also bought back shares worth $493 million during the quarter under review. As of Dec 31, 2018, it has $5.5 billion left under its share repurchase authorization.

Guidance for 2019

Based on 2018 results, Anthem has released its outlook for 2019. The company’s adjusted net income is expected to be higher than $19 per share. Investment income is anticipated to be around $1 billion.

Medical membership is estimated in the range of 40.9-41.3 million.

Operating revenues are projected to be around $100 billion including premium revenues of $90.5-$92.5 billion. Operating cash flow is envisioned to be higher than $5.2 billion.

SG&A ratio is forecast in the band of 13.5%, plus minus 30 bps. The company expects effective tax rate between 19.5% and 21.5%.

The company estimates the benefit expense ratio to be 86.2%, plus or minus 30 basis points.

Full-Year Highlights

Adjusted net income for the full year was $15.89 per share, up 32% year over year. Total revenues for the company came in at $91.3 billion, up 2.6% year over year.

Zacks Rank

Anthem carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases From Medical Sector

Some other stocks worth considering from the medical sector are as follows:

Molina Healthcare, Inc MOH is set to report fourth-quarter 2018 earnings performance on Feb 11. The stock has an Earnings ESP of +2.89% and a Zacks Rank #1.

Acadia Healthcare Company, Inc. ACHC is slated to report fourth-quarter earnings on Feb 20. It has a Zacks Rank of 3 and an Earnings ESP of +3.04%.

Universal Health Services, Inc. UHS has an Earnings ESP of +2.50%. This company is a Zacks #3 Ranked player and is scheduled to release fourth-quarter earnings on Feb 27.

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