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Nicholas Kitonyi
Nicholas Kitonyi
Articles (409)  | Author's Website |

Is Anthem's Pullback an Opportunity to Buy?

The stock is down more than 4% after earnings

January 27, 2021 | About:

Shares of health insurance provider Anthem Inc. (NYSE:ANTM) fell more than 5% on Wednesday morning. Before the opening bell, the company announced fourth-quarter 2020 revenue and earnings that beat analysts' expectations.

Anthem's stock is now down nearly 13% since Jan. 11, creating an exciting opportunity for investors. At the current price-earnings ratio of about 15.28, the company appears to be fairly valued based on the Peter Lynch earnings line.

The company experienced strong growth across all business verticals despite the challenges created by the Covid-19 pandemic. A continuous improvement can be expected in the coming quarters as the economy continues to recover.

Highlights from recent quarterly results

Anthem's earnings for the quarter fell 34.54% to $2.54 per share, beating consensus analyst estimates of $2.53. The company's earnings were $3.88 per share in the year-ago quarter.

The Indiana-based health care company's top line grew by 16.22% to $31.53 billion. This was better than the consensus estimate of $30.78 billion.

Anthem reported a 16.9% increase in annual revenue to $121.87 billion, up from $104.21 billion reported for 2019. Annual GAAP earnings per share came in at $17.98, down 2.7% from $18.47.

The company provided a full-year 2021 revenue guidance of $135.1 billion with income from insurance premiums estimated to be in the range of $114.5 billion to $115.5 billion. GAAP earnings for the year are estimated at around $23.51 per share with potential favorable items pushing the non-GAAP figure higher to $24.50.

Anthem President and CEO Gail K. Boudreaux said that the company's strong performance in 2020 "reflected the diversity and strength of our portfolio and unwavering commitment to customers."

Valuation

From a valuation perspective, shares of Anthem are trading at a trailing price-earnings ratio of 15.28, which is relatively in line with the Peter Lynch fair value.

The company's closest peers trade at relatively higher valuation multiples with UnitedHealth Group Inc. (NYSE:UNH) at a price-earnings ratio of 21.41. On the other hand, Magellan Health Inc. (NASDAQ:MGLN) trades at a price-earnings ratio of 48.07 while Centene Corp.'s (NYSE:CNC) equivalent is 16.71.

In summary, shares of Anthem appear to be fairly valued based on the Peter Lynch line. However, when we compare to close peers, the company's stock price looks relatively undervalued. This makes it an interesting pick for value investors in 2021.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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