As you know, it’s earnings season, and this morning, Anthem Inc. (ANTM) released its fourth quarter earnings report–and with it came a buying opportunity for us.
The big headline of this report was that the health insurer posted $180.9 million in net income, which was a 64.3% decline from the year ago quarter. Anthem also reported $1.14 earnings per share, falling short of analysts’ projections of $1.20 per share. After the news hit the market, ANTM shares dropped just over 3%.
However, the report wasn’t nearly as bad as some are making it seem. Analysts had actually expected a drop in profits, since the company incurred several large, one-time expenses this quarter. These expenses included a $51.5 million charge related to Anthem’s pending acquisition of Cigna Corp (CI), which is expected to increase profits by 10% once the merger is complete. Anthem also saw a $42.3 million fee in Q4 that was related to California’s changing tax structure.
More importantly, Anthem beat analysts’ revenue projections for the quarter by 1.4%. (It reported $20.19 billion; analysts expected $19.90 billion.) Where did the revenue surprise come from? Well, the insurer has been gaining new business from government programs like Medicaid, and Anthem offers plans that are part of the Affordable Care Act’s insurance program, too. Historically, the company has received recognition for its private Blue Cross Blue Shield coverage, but going forward, it expects to see its government offerings as a major revenue source. This could also help its share price continue to increase over the coming months.
So even though ANTM shares declined this morning, I don’t expect them to stay down for long. The company has set itself up for long-term growth, and I expect that to play out very well for them. Internally, Anthem still expects 2016 adjusted earnings per share to exceed $10.80, and at current prices, it’s offering shareholders a 1.77% annual yield.