Can Enrollment Growth Drive Anthem (ANTM) In Q3 Earnings?

Anthem Inc. (NYSE:ANTM) will release third-quarter 2017 results on Oct 25, before the market opens. Last quarter, the company delivered a positive earnings surprise of 3.7%. Let’s see how things are shaping up for this announcement.

Anthem has been witnessing revenue appreciation over the past many quarters, backed by membership growth. Both its fully insured and self-funded memberships have grown consistently. The third quarter is also expected to witness the same uptrend.

The Zacks Consensus Estimate for third-quarter revenue is currently pegged at $22.1 billion, reflecting year-over-year growth of nearly 5%. Our consensus estimates for fully insured and self-funded memberships stand at 15.3 million and 25 million, up 0.7% and 1.2%, respectively.

Total medical enrollment has also been steadily rising on the back of Obamacare’s Medicaid expansion. For the soon-to-be-reported quarter, the Zacks Consensus Estimate for Medical enrollment is pegged at 40.3 million, up 1% year over year. The Government business of Anthem has been a major contributor behind this increase in Medical enrollment. Our consensus estimate for total operating revenue of Government business is $11.8 billion, up 3% year over year.

Operating revenues of its Commercial business have also been impressive over the years. The Zacks Consensus Estimate for total operating revenue from Commercial business is $10.1 billion, up 5% year over year.

Other Factors at Play

Medicare Advantage product offerings might have supported Medicare enrollment growth, again boosting the company’s top line.

However, Anthem expects to witness higher medical costs for individual ACA-compliant products as was the case last quarter.

In addition, the company is likely to have experienced higher benefit expense ratio from its Medicaid business due to higher claims.

Administrative costs are likely to have risen during the third quarter continuing the previous trend.

The Individual business is also expected to remain a drag in the third quarter.

Earnings Predictions

Our proven model shows that Anthem has the right combination of two key ingredients to beat estimates this quarter.

Zacks ESP:Anthem has an Earnings ESP of +1.55%, representing the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This is because the Most Accurate estimate of $2.45 is pegged higher than the Zacks Consensus Estimate of $2.41. The positive ESP indicates a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Anthem, Inc. Price and EPS Surprise

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

Zacks Rank: Anthem carries a Zacks Rank #3 (Hold). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of an earnings beat.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some other companies from the medical sector that you may want to consider as these too have the right combination of elements to beat on earnings this quarter:

Aetna, Inc. (NYSE:AET) is set to report third-quarter earnings on Oct 31 with an Earnings ESP of +1.20% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teladoc Inc. (NYSE:TDOC) has an Earnings ESP of +0.76% and a Zacks Rank #3. The company is set to report third-quarter earnings on Nov 1.

Humana, Inc. (NYSE:HUM) has an Earnings ESP of +1.10% and a Zacks Rank of 3 as well. The company is set to report third-quarter earnings on Nov 8.

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