Comments Regarding 2016 Headwinds May Overshadow Anthem's (ANTM) 3Q Results; UBS Cuts Price Target to $180
UBS maintained a Buy rating on Anthem (NYSE: ANTM), and cut the price target to $180.00 (from $188.00), following the company's 3Q earnings conference call. Management issued comments regarding 2016 headwinds that may overshadow the results of a strong 3Q. Analyst A.J. Rice was left with the impression that ANTM is still developing its 2016 outlook and is being potentially overly conservative.
Rice commented, "Anthem's comments regarding 2016 headwinds on its conf call overshadowed a strong 3Q. We were left with the impression that ANTM is still developing its 2016 outlook and is being potentially overly conservative with respect in discussing headwinds for next year. For example, ANTM now sees the individual business as a 2016 headwind (vs a tailwind previously) for 2016. For perspective, we estimate a draconian 200K decline in individual enrollment Y/Y and a 1% decline in margins would pressure consolidated Y/Y earnings growth by a modest 1.5-2.0%. Also, ANTM is taking a conservative view on exchange enrollment for 2016. Regarding potential Medicaid margin pressure, some initial state rate proposals could, if unchanged, adversely impact segment margin (even with the reserve collars ANTM has in place). Also, ATNM will benefit in terms of enrollment from recent contract wins in Iowa and with TX Foster Care, but new business often is margin dilutive and has little impact on the bottom line in the first year. Finally, ANTM may accelerate admin spending into next year, as it seeks to upgrade certain internal IT systems that it plans to keep post its merger with Cigna."
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Shares of Anthem closed at $141.80 yesterday.