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Why Is Anthem (ANTM) Down 8.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Anthem (ANTM). Shares have lost about 8.2% in that time frame, outperforming 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 Q1 Earnings Beat Estimates, Hikes '22 EPS View

Anthem reported first-quarter 2022 earnings of $8.25 per share, which outpaced the Zacks Consensus Estimate of $7.81 by 5.6%. The bottom line improved 17.7% year over year.

ANTM's results benefited from an uptick in revenues, solid performances by its divisions and higher membership growth, partly offset by elevated costs.

Quarterly Operational Update

Operating revenues of Anthem in the first quarter totaled $37.9 billion, which rose 18% year over year. The improvement can be attributed to Medicaid, Medicare Advantage and Commercial risk-based membership growth and the buyouts of MMM and Paramount that contributed to improved premium revenues. Premium rate increases combined with higher pharmacy product revenues within IngenioRx also contributed to the top-line growth. The top line beat the consensus mark by 1.4%.

As of Mar 31, 2022, medical enrollment of Anthem amounted to roughly 46.8 million, which grew 7.5% year over year, driven by higher enrollment across Commercial & Specialty Business as well as Government Business.

ANTM's benefit expense ratio of 86.1% deteriorated 50 basis points (bps) year over year due to the persistent shift in the business mix.

The SG&A expense ratio improved 70 bps year over year to 11.5% in the quarter under review, attributable to operating expense leverage linked with growing operating revenues.

Total expenses of $35.8 billion escalated 18.4% year over year due to increased benefit expenses, cost of products sold, selling, general and administrative expenses, and amortization of other intangible assets.

Segmental Results

Commercial & Specialty Business

Operating revenues improved 8.2% year over year to $10.3 billion in the first quarter. The segment's operating gain of $1.1 billion declined 14.7% year over year. Operating margin deteriorated 290 bps year over year to 10.5% in the quarter under review.

Government Business

Operating revenues of $23.8 billion climbed 23.2% year over year in the first quarter. Operating gain surged 65.1% year over year to $789 million. Operating margin of the segment came in at 3.3%, which improved 80 bps year over year.

IngenioRx

Operating revenues from the segment amounted to $6.7 billion, up 14% year over year. Operating gain of $398 million slipped 2.2% year over year. Meanwhile, operating margin deteriorated 90 bps year over year to 6% in the quarter under review.

Other

Operating revenues of $3.2 billion climbed 35.9% year over year. The segment reported an operating gain of $178 million, which increased by more than 22-fold from the prior-year quarter's figure.

Financial Update (as of Mar 31, 2022)

Anthem exited the first quarter with cash and cash equivalents of $6.2 billion, which increased 26.3% from the level at 2021 end. Long-term debt, less current portion totaled nearly $20 billion, down 6% from the 2021-end figure.

Net cash provided by operating activities in the first quarter inched up 1.4% year over year to $2.5 billion.

Capital Deployment

In the first quarter, Anthem bought back shares worth $545 million. ANTM had around $3.6 billion remaining under its share buyback authorization as of Mar 31, 2022.

Anthem paid out a quarterly dividend of $1.28 per share in the first quarter, adding up to a distribution of cash worth $309 million. Meanwhile, its board of directors announced a second-quarter 2022 dividend of $1.28 per share on Apr 19, 2022. The dividend will be paid on Jun 24, 2022, to shareholders of record as of Jun 10.

2022 Outlook

On the basis of better-than-expected first-quarter 2022 results, Anthem hiked its guidance for 2022 with respect to adjusted net income per share.

Adjusted net income is now anticipated to be more than $28.40 per share, higher than the prior outlook of "greater than 28.25". The revised guidance indicates a minimum growth of at least 9.3% from the 2021 reported figure.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Anthem has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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.

Outlook

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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