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Anthem's (ANTM) Q4 Earnings Miss Estimates, Rise Y/Y

Zacks Equity Research

Anthem Inc.’s ANTM fourth-quarter earnings of $3.88 per share missed the Zacks Consensus Estimate of $3.90 by 0.5% due to high expenses. However, the bottom line surged 59% year over year, driven by solid revenues and the successful launch of IngenioRx.

Anthem posted operating revenues of $27.1 billion, surpassing the Zacks Consensus Estimate by 1%. The top line was also up 16.4% year over year, boosted by higher premium revenues derived from membership growth across all businesses as well as rate surges to cover overall cost trends. The results were supported by growth in value-added services including pharmacy and integrated health offerings, partially offset by the one-year waiver of the health insurance tax in 2019.

Quarterly Operational Update

Anthem’s benefit expense ratio of 89% improved 220 basis points (bps) from the prior-year quarter, aided by the one-year waiver of the health insurance tax in 2019.

SG&A expense ratio of 12.9% contracted 260 bps from the year-ago quarter on the back of growth in operating revenues and a year-long waiver of the health insurance tax in 2019.

Total expenses of the company increased 15.2% year over year to $26.3 billion.

Anthem, Inc. Price, Consensus and EPS Surprise

Anthem, Inc. Price, Consensus and EPS Surprise

Anthem, Inc. price-consensus-eps-surprise-chart | Anthem, Inc. Quote

Strong Segmental Results

Commercial & Specialty Business


Operating revenues of $9.3 billion in the fourth quarter rose 5.5% year over year.

Operating gain totaled $535 million, up 69.3% year over year, led by the launch of IngenioRx and a greater penetration of value-added services.

However, the same was partially offset by margin normalization in the Individual business.

Operating margin was 5.7%, up 210 bps year over year.

Government Business

Operating revenues of $16.2 billion ascended 12.6% from the prior-year quarter.

Operating gain was $583 million, up 29.3% year over year. This uptick reflects the impact of higher premiums from rate adjustments and more members in the Medicaid business. However, the same was offset to some extent by higher selling, general and administrative expenses.

Operating margin was 3.6%, expanding 50 bps year over year.

Other

The Other segment generated operating revenues of $3.8 billion skyrocketed 835.5% year over year.

However, this segment incurred an operating loss of $20 million, wider than $17 million in the year-earlier period.

Financial Update

As of Dec 31, 2019, Anthem had cash and cash equivalents of $4.9 billion, up 25.5% from 2018-end level.

As of Dec 31, 2019, its long-term debt inched up 3.3% to $17.7 billion from the figure at 2018 end.

Operating cash outflow was $1.3 billion for the fourth quarter of 2019.

Capital Deployment

During the fourth quarter, the company paid out a quarterly dividend of 80 cents per share, leading to a distribution of cash totaling $202 million.  

Moreover, the company announced a first-quarter 2020 dividend of 95 cents per share, payable Mar 27 to its shareholders as of Mar 16, 2020.

The company also bought back shares worth $306 million during the quarter under review. As of Dec 31, 2019, it had $3.8 billion board-approved share repurchase authorization left.

Full-Year Update

For 2019, operating revenues totaled $103.1 billion, up 12.9% year over year.
As of Dec 31, 2019, Medical enrollment inched up 2.7% year over year to 41 million members. This upside was primarily driven by higher total risk enrollment, fee-based enrollment, Government Business enrollment and Commercial & Specialty Business enrollment.

Operating cash flow of the year soared 58.4% year over year to $6.1 billion.

Guidance for 2020

Following the company’s fourth-quarter results, Anthem issued its outlook for 2020.

Adjusted net income for the current year is projected to be more than $22.30 per share.

Medical membership is expected in the range of 41.9-42.3 million.
Operating revenues are anticipated around $117 billion including premium revenues of $101-$103 billion.

Also, the company estimates operating cash flow of more than $6.4 billion.

The company predicts the benefit expense ratio at 85.8%, plus or minus 50 basis points.

For the current year, investment income is expected to be $970 million.

Anthem envisions its SG&A ratio in the range of 12.8% plus or minus 30 basis points.

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 stocks worth considering from the medical sector with a perfect mix of elements to surpass estimates in the upcoming quarterly releases are as follows:

AmerisourceBergen Corporation ABC is slated to announce fourth-quarter earnings on Jan 30. The stock has an Earnings ESP of +0.82% and is Zacks #3 Ranked.

Molina Healthcare, Inc MOH has an Earnings ESP of +0.48% and a Zacks Rank of 3. The company is scheduled to release fourth-quarter earnings on Feb 10.

Teladoc Health, Inc. TDOC is set to report fourth-quarter earnings on Feb 26. The stock is #3 Ranked and has an Earnings ESP of +11.17%.
 

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