Anthem Inc Valuation – February 2016 $ANTM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Anthem Inc (ANTM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Anthem, Inc. is a health benefit company. The Company offers a range of network-based managed care plans to large and small employer, individual, Medicaid and Medicare markets. Its managed care plans include preferred provider organizations (PPOs), health maintenance organizations (HMOs), point-of-service (POS), plans, traditional indemnity plans and other hybrid plans, including consumer-driven health plans (CDHPs), and hospital only and limited benefit products. In addition, the Company also provides an array of managed care services to self-funded customers, including claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. The Company provides an array of specialty and other insurance products and services, such as dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal health care.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of ANTM

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $29,814,829,594 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 49.22% Pass
5. Moderate PEmg Ratio PEmg < 20 11.97 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.33 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ANTM value chart February 2016

EPSmg $9.79
MG Growth Estimate 4.12%
MG Value $163.82
Opinion Undervalued
MG Value based on 3% Growth $141.97
MG Value based on 0% Growth $83.22
Market Implied Growth Rate 1.74%
Current Price $117.22
% of Intrinsic Value 71.55%

Anthem Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short dividend history.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $7.68 in 2012 to an estimated $9.79 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.74% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Stage 3: Information for Further Research

ANTM charts February 2016

Graham Number $145.79
PEmg 11.97
PB Ratio 1.33
Dividend Yield 1.97%
Number of Consecutive Years of Dividend Growth 6



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Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Long-Term Debt $15,324,500,000
Total Assets $61,717,800,000
Intangible Assets $25,720,200,000
Total Liabilities $38,673,700,000
Shares Outstanding (Diluted Average) 261,030,000

Earnings Per Share History

Next Fiscal Year Estimate $10.70
Dec2015 $10.45
Dec2014 $8.99
Dec2013 $8.20
Dec2012 $8.18
Dec2011 $7.25
Dec2010 $6.94
Dec2009 $9.88
Dec2008 $4.76
Dec2007 $5.56
Dec2006 $4.82
Dec2005 $3.94
Dec2004 $3.05
Dec2003 $2.73
Dec2002 $2.26
Dec2001 $1.65

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $9.79
Dec2015 $9.10
Dec2014 $8.25
Dec2013 $7.95
Dec2012 $7.68
Dec2011 $7.25
Dec2010 $6.96
Dec2009 $6.58
Dec2008 $4.76
Dec2007 $4.52
Dec2006 $3.78
Dec2005 $3.08
Dec2004 $2.42
Dec2003 $1.84
Dec2002 $1.19
Dec2001 $0.55

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Insurance Industry – October 2015
Anthem Inc. Analysis – September 2015 Update $ANTM
Anthem Inc. Analysis – June 2015 Update $ANTM
18 Companies in the Spotlight This Week – 3/15/15
Anthem Inc. Quarterly Valuation – March 2015 $ANTM

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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