Anthem's (ANTM) Q3 Earnings Beat Estimates, Improve Y/Y

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Anthem Inc.ANTM came up with third-quarter earnings of $3.81 per share, which surpassed the Zacks Consensus Estimate of $3.67 by 3.8%. The bottom line also surged 43.8% year over year, driven by a solid operating performance.

Anthem, Inc. Price, Consensus and EPS Surprise

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

Anthem posted operating revenues of $23 billion, almost in line with the Zacks Consensus Estimate. The top line was up 4% year over year, driven by premium increases and the return of the health insurance tax in 2018 along with Medicare growth. However, this upside was partially offset by a weakened footprint in the Individual ACA-compliant marketplace.

Quarterly Operational Update

Medical enrollment slipped 1.9% year over year to 39.5 million members. This downside was primarily caused by a reduced presence in the Individual ACA-compliant marketplace along with lower membership in Local Group and Medicaid.

Anthem's benefit expense ratio of 84.8% improved 220 basis points (bps) from the prior-year quarter, aided 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 15.4% deteriorated 180 bps from the year-ago quarter due to the return of the health insurance tax in 2018 and the impact of increased investment spend this year to support various growth initiatives.

Strong Segmental Results

Commercial & Specialty Business

Operating revenues were $912 million in the third quarter, down 9.2% year over year.

Operating gain totaled $833 million, up 55.7% year over year, led by an improved medical cost performance and reduced allocated costs compared with the figure in the same time frame of 2017.

Operating margin was 9.1%, up 380 bps year over year.

Government Business

Operating revenues were $13.8 billion, up 15% from the prior-year quarter.

Operating gain was $466 million, up 2% 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 this year. However, the same metric was offset by increased medical expenses in the Medicaid business.

Operating margin was 3.4%, down 40 bps year over year.


The Other segment generated operating revenues of $11 million, up 37.5% year over year.

This segment reported an operating loss of $50 million, wider than $10 million incurred in the year-earlier period.

Financial Update

As of Sep 30, 2018, Anthem had cash and cash equivalents of $4.26 billion, up 18% from year-end 2017.

As of Sep 30, 2018, its long-term debt dipped 0.5% to $17.3 billion from year-end 2017.

Operating cash outflow was $3.3 billion during the first nine months of 2018, down 38.7% year over year.

Capital Deployment

Moreover, the company announced a fourth-quarter dividend of 75 cents per share on Oct 30, 2018, payable Dec 21, 2018.

The company also bought back shares worth $397 million during the quarter under review. As of Sep 30, 2018, it has a $6-billion board-approved share repurchase authorization left.

Guidance for 2018

Based on third-quarter results, Anthem has raised its outlook for 2018 adjusted net earnings. It now projects the same to be higher than $15.60 per share.

Medical membership is now expected in the range of 39.9-40.1 million, same as the previous prediction.

Operating revenues were kept unchanged in the band of $91-$92 billion.

Also, its estimates for operating cash flow of more than $4 billion were left unaltered.

The company estimates the benefit expense ratio to be 84.2%, plus or minus 30 basis points.

Zacks Rank

Anthem carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Releases From the Medical Sector

UnitedHealth Group Incorporated's UNH third-quarter bottom line beat estimates on the back of higher revenues.

Centene Inc.'s CNC third-quarter earnings surpassed estimates, majorly driven by the execution of its growth strategy as well as solid operating metrics.

Community Health Systems, Inc's. CYH wider-than-expected loss is due to lower admissions in the reported quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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