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Why Is Anthem (ANTM) Up 3.8% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Anthem (ANTM). Shares have added about 3.8% in that time frame, underperforming 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 drivers.

Anthem's Q1 Earnings Miss Estimates, Improve Y/Y

Anthem delivered first-quarter 2020 earnings of $6.48 per share, which missed the Zacks Consensus Estimate by 0.9%. However, the bottom line improved 7.5% year over year on the back of higher membership. Anthem reported operating revenues of $29.4 billion, which beat the Zacks Consensus Estimate by 2.6%. Moreover, the top line was up 20.7% year over year, aided by pharmacy product revenues related to the launch of IngenioRx. The increase was further attributable to higher premium revenues from rate increases to cover overall cost trends, including the return of the health insurance tax in 2020, and membership growth.

Quarterly Operational Update

Medical enrollment increased 3.2% year over year to 42.1 million members, backed by Government Business enrollment and Commercial & Specialty Business. Anthem’s benefit expense ratio of 84.2% decreased 20 basis points (bps) from the prior-year quarter, driven by the return of the health insurance tax in 2020, partially offset by the extra calendar day in the first quarter of 2020 and margin normalization in the Individual business. SG&A expense ratio of 12.8% contracted 20 bps from the year-ago quarter driven by growth in operating revenues, partially offset by the return of the health insurance tax in 2020 and increased spend to support growth initiatives.

Strong Segmental Results

Commercial & Specialty Business

Operating revenues were $9.4 billion in the first quarter, down 0.3% year over year. Operating gain totaled $1.4 billion, down 11.1% year over year due to margin normalization in the Individual business and the shift of pharmacy earnings to the IngenioRx segment. The decrease was further due to the impact of one extra calendar day compared to the prior-year quarter, partially offset by growth in value-added services.

Operating margin was 15.2%, down 180 bps year over year.

Government Business

Operating revenues were $17.5 billion, up 17% from the prior-year quarter.
Operating gain was $411 million, up 9.9% year over year on the back of higher premiums from rate adjustments and membership growth in the Medicaid business as well as the return of the health insurance tax in 2020, partially offset by higher selling, general, and administrative spend to support growth as well as the impact of one extra calendar day compared to the prior-year quarter. Operating margin was 2.4%, down 10 bps year over year.


The Other segment’s operating profit was $14 million against year-earlier quarterly loss of $32 million.

Financial Update

As of Mar 31, 2020, Anthem’s cash and cash equivalents totaled $5.3 billion, up 8.3% from year-end 2019.

As of Mar 31, 2020, its long-term debt less current portion increased 6.8% to $19 billion from the level at 2019 end. Operating cash outflow at the end of the first quarter was $2.5 billion, up 54.3% from the figure as of Mar 31, 2019.

Capital Deployment

During the first quarter, Anthem bought back shares worth $529 million. As of Mar 31, 2020, the company had shares worth around $3.3 billion remaining under its share buyback authorization. Moreover, the company paid out a quarterly dividend of 95 cents per share, adding up to a distribution of cash worth $240 million. The company announced a dividend of 95 cents per share on Apr 28, 2020 for the second quarter, payable on Jun 25 to shareholders of record as of Jun 10, 2020.

Revised Guidance for 2020

Based on solid first-quarter results, Anthem updated its guidance for 2020. GAAP net income is expected to be greater than $18.27 per share, including approximately 93 cents per share of net unfavorable items. The company’s adjusted net income is now expected to be higher than $22.30 per share. The company has withdrawn all other previously issued financial guidance metrics for 2020 due to unprecedented uncertainty around the COVID-19 pandemic and its impact.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 10.95% due to these changes.

VGM Scores

Currently, Anthem has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Anthem has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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