Anthem (ANTM) is a U.S. managed care company, which provides excellent shareholder value. I am bullish on the stock.
Robust Growth
Anthem has improved on its operating income lately by increasing its 3-year operating income’s CAGR to 10.31% from its 10-year CAGR of 4.50%. The company recently beat its Q-2 earnings estimates after posting quarterly operating revenue of $33.3B, a 14.1% year-over-year increase.
Success in Q-2 was predominantly driven by higher premium revenue, linked to Medicaid and Medicare growth. In addition, the revenue from Anthem’s pharmacy benefit manager IngenioRx rose by 18%, while its government business also increased by 16.4% year-over-year.
Anthem’s guidance on memberships is strong. The company anticipates 44.8 – 45.3 million memberships for the full year of 2021, with full-year revenue of $135.2B.
Value In-Store
Anthem’s share buyback activity was resumed last June. In the first half of 2021, the company repurchased stock worth $927 million, and it’s expected to buy back a total of 1.6 billion for the entirety of 2021.
It’s forecasted that Anthem’s diluted EPS will grow by 13.62% for the year ahead. Diluted EPS is an excellent measurement for investors to use, as it measures the profitability of the company relative to shares outstanding, which is essentially your residual as an equity holder. The ratio also acts as a leading indicator of the future stock price; if Anthem’s diluted EPS were to reach its targets, the stock’s price would most likely follow.
To consolidate the value argument, we could look at price/sales (0.74), which is -90.60% below the industry average. We could also look at the stock’s price/earnings (18.56), which is -20.22% below the industry average.
Key Drivers
Anthem’s considerable value-add has been its ability to strike partnerships and complete accretive acquisitions, which has resulted in a significant amount of synergies.
Buyouts of Beacon Health and myNexus have strengthened Anthem’s general market share as a managed care firm by increasing its scope through leveraging behavioral health and nursing businesses. Partnering up with CVS (CVS) in the pharmacy space has also assisted with topline growth.
Wall Street’s Take
Wall Street rates Anthem highly and the general consensus is that it’s a Strong Buy. There’ve been 14 ratings by analysts, with 11 Buy ratings, 3 Hold, and no Sell ratings. The average Anthem price target is $429.43, which could provide more than 11% in gains to investors.
Final Word
Anthem is an outstanding stock and will provide value to shareholders at this stage, due to its market positioning and stock buyback program. Wall Street thinks Anthem is an excellent stock for both capital gains and/or dividend investors; I fully agree.
Disclosure: At the time of publication, Steve Gray Booyens had a Long position in CVS.
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