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A month has gone by since the last earnings report for Anthem (ANTM). Shares have lost about 2.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Anthem due for a breakout? 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 Q2 Earnings Beat Estimates, Decline Y/Y
Anthem delivered second-quarter 2021 earnings of $7.03 per share, which beat the Zacks Consensus Estimate of $6.34 by 10.9% owing to better revenues and solid Medicaid and Medicare businesses. The bottom line, however, decreased 23.6% year over year.
Anthem’s operating revenues of $33.3 billion beat the Zacks Consensus Estimate marginally by 0.6%. The top line improved 14.1% year over year on increased premium revenues, attributable to the company’s strong Medicaid and Medicare businesses along with higher rates to cover cost trend.
Pharmacy product revenues recognized from the launch of IngenioRx also contributed to the same.
Quarterly Operational Update
Anthem’s benefit expense ratio of 86.8% expanded 890 basis points (bps) from the prior-year quarter, primarily due to increased non-COVID healthcare utilization as well as COVID-related healthcare costs.
SG&A expense ratio of 11.5% contracted 240 bps from the year-ago quarter on the back of repealing the health insurance tax in 2021 and better operating revenues.
Total expenses of the company increased 20.6% year over year to $31.5 billion due to higher benefit expense, cost of products sold.
Commercial & Specialty Business
Operating revenues of $9.6 billion in the first quarter were up 8.7% year over year. The segment reported an operating gain of $791 million, which decreased 42.3% year over year. Operating margin was 6.3%, which contracted 520 bps from the year-ago quarter’s figure.
Operating revenues were $20 billion, up 16.4% from the prior-year quarter.
Operating gain was $868 million, down 46.4% year over year due to higher non-COVID utilization and COVID-19-related expenses.
Operating gain from the segment was $405 million in second-quarter 2021. Operating gain in the segment rose 33.2% year over year on the back of growth in integrated medical and pharmacy membership.
Operating revenues were $2.5 billion, which soared 73.3% from the prior-year quarter. The Other segment’s gain of $17 million compared unfavorably with the year-earlier quarterly gain of $66 million.
Financial Update (as of Jun 30, 2021)
Anthem’s cash and cash equivalents totaled $5.2 billion, down 8.4% from the level at 2020 end. The company’s long-term debt less current portion increased 14.9% to $22.2 billion from the level at 2020 end.
Cash provided by operating activities was $4.1 billion for the first six months of 2021, down 47.8% year over year.
During the second quarter, Anthem bought back shares worth $480 million. As of Jun 30, 2021, the company had shares worth $5.2 billion remaining under its share buyback authorization. The company paid out a quarterly dividend of $1.13 per share, adding up to a distribution of cash worth $278 million.
The company announced a dividend of $1.13 per share on Jul 20, 2021 for third-quarter 2021. The new dividend will be payable Sep 24, 2021 to its shareholders of record as of Sep 10, 2021.
Guidance for 2021
Adjusted net income for the current year is projected to be more than $25.50 per share, higher than the prior estimate of more than $25.10.
Medical membership is still forecast in the range of 44.8-45.3 million, up from the previous band of 44.1-44.7 million.
Operating revenues are anticipated at $137.1 billion including premium revenues of $116.5-$117.5 billion compared with the previous estimate of $135.1 billion. The company reaffirms its operating cash flow view of more than $5.8 billion. For the current year, investment income is expected to be $1.1 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
At this time, Anthem has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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