Leerink Partners Cuts Price Target Following Anthem's (ANTM) Mixed 4Q Results
Leerink Partners maintained an Outperform rating on Anthem (NYSE: ANTM), and cut the price target to $190.00 (from $200.00), following the company's 4Q earnings report. 2015 adjusted EPS of $10.16 missed modestly from the previously disclosed shutdown of the Colorado Coop. 2016 EPS guidance floor of $10.80 was reaffirmed with upside on MLR and SG&A though at tepid top-line growth marked by HIX and Employer losses.
Analyst Ana Gupte commented, "We reiterate our OP rating on ANTM while lowering our PT to $190 (from $200) after a mixed 4Q. 2015 Adj. EPS of $10.16 ex items missed modestly from the previously disclosed shutdown of the Colorado Coop. MLR deterioration from HIX pressures was worse than expectations though offset by an SG&A beat. On the positive, reserves and Commercial cost trend developed favorably relative to expectations. 2016 EPS guidance floor of $10.80 was reaffirmed with upside on MLR and SG&A though at tepid top-line growth marked by HIX and Employer losses. Our view of EPS upside in 2016 is still supported by a) aggressive SG&A efficiency initiatives, b) conservative reserving and 3R accounting on HIX, c) cushion in guided 50 bps of uptick in medical cost trend. The stand-alone ANTM medium-term growth story of a "Catcher's mitt" remains challenged as fully insured Employer shifts to ASO, Private Exchanges disappoint, and profitable viability of Public Exchanges remains an open question. Management is still committing to the $14 EPS in 2018 through SG&A efficiency, though suggested that revenue of $100B is unlikely. We lower our 2016E EPS modestly from $11.15 to $11.00 given the membership pressures in Individual and Group business though margins have upside. Our 2018E EPS is now at $13.50 (from $13.54) though driven by SG&A, while we lower our revenue expectation from $100B to $92B. PBM ESRX (MP) contract cost savings of $500-700MM offer optionality to the upside, though the timing seems less clear. The Balance Sheet is solid, and the below-average P/ E of ~12x on our 2016E EPS is compelling with a potential increase in dividend at the Feb. Board meeting a likely catalyst. Finally, close of the CI (OP) transaction, which we see as 60%+, likely offers a meaningful call option to the upside."
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Shares of Anthem closed at $131.23 yesterday.