Anthem Inc Valuation – February 2019 $ANTM

Company Profile (excerpt from Reuters): Anthem, Inc., incorporated on July 17, 2001, is a health benefits company. The Company operates through three segments: Commercial and Specialty Business, Government Business and Other. It offers a full spectrum 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; indemnity plans and other hybrid plans, including consumer-driven health plans (CDHPs); and hospital only and limited benefit products. In addition, it 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. It 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 healthcare. It also provides services to the federal government in connection with the Federal Employee Program (FEP).


Downloadable PDF version of this valuation:

ModernGraham Valuation of ANTM – February 2019

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 $77,501,965,462 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 104.74% Pass
5. Moderate PEmg Ratio PEmg < 20 21.15 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.79 Fail
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

EPSmg $14.26
MG Growth Estimate 9.48%
MG Value $391.61
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $206.78
MG Value based on 0% Growth $121.22
Market Implied Growth Rate 6.32%
Current Price $301.55
% of Intrinsic Value 77.00%

Anthem Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $8.74 in 2015 to an estimated $14.26 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 6.32% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Anthem Inc revealed the company was trading above its Graham Number of $207.01. The company pays a dividend of $3 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 21.15, which was below the industry average of 32.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Anthem Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Graham Number $207.01
PEmg 21.15
PB Ratio 2.79
Dividend Yield 0.99%
TTM Dividend $3.00
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $17,217,000,000
Total Assets $71,571,000,000
Intangible Assets $29,511,000,000
Total Liabilities $43,030,000,000
Shares Outstanding (Diluted Average) 263,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $17.26
Dec2018 $14.19
Dec2017 $14.35
Dec2016 $9.21
Dec2015 $9.38
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

EPSmg History
Next Fiscal Year Estimate $14.26
Dec2018 $12.25
Dec2017 $10.86
Dec2016 $9.01
Dec2015 $8.74
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

Recommended Reading:

Other ModernGraham posts about the company

Anthem Inc Valuation – May 2018 $ANTM
Anthem Inc Valuation – January 2017 $ANTM
15 Best Undervalued Stocks of the Week – 8/20/16
Anthem Inc Valuation – August 2016 $ANTM
15 Best Stocks For Value Investors This Week – 2/13/16

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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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