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Anthem earnings beat lifts health insurer stocks

  • Anthem posted fourth-quarter earnings that were better than expected.
  • Shares rose to a historic high, and closed up nearly 2 percent.
  • The move came a day after health insurance stocks were hit by the announcement of a new health-care venture from Amazon, Berkshire Hathaway and J.P. Morgan
Anthem Health Insurance
Gus Ruelas | Reuters

Better-than-expected earnings from Anthem helped lift shares of health insurers Wednesday, one day after investors were spooked by a new initiative from Amazon, Berkshire Hathaway and J.P. Morgan to combat rising employer health-care costs.

Anthem shares rose to a historic high of $267.95, after the health insurer reported fourth-quarter profits of $1.29 per share, 2 cents above the Thomson Reuters consensus estimate. Revenue of $22.45 billion also topped expectations. Anthem closed Wednesday at $247.85, up 1.8 percent.

Among the highlights of the quarter, Anthem's Affordable Care Act exchange business produced a surprise profit for 2017, despite an uptick in flu cases late last year.

"The claims experienced in our Individual ACA-compliant business was better-than-expected during the fourth quarter," said CEO Gail Boudreaux on the company's earnings call. "As a result, our business was slightly profitable during the year, better than the relatively breakeven performance we had expected."

The nation's second largest insurer pulled back sharply from the Obamacare exchanges for 2018, citing market upheaval and potential losses, and it still expects its exchange membership to decline by 70 percent.

Anthem raised its profit forecast for 2018, saying it now expects to earn more than $15.00 per share, attributing $2.00 per share to tax reform. The company says it plans to return half of the windfall to shareholders, another 25 percent to members in the form of rebates, and reinvest another 25 percent into the business.

While the subject of the new Amazon-led alliance never came up during the earnings call, Boudreaux said technology will be among the key areas of investments – something the tech giant and its partners emphasized that they want in order to simplify insurance benefits for their employees.

"We're investing in new digital and mobile capabilities to drive greater automation and enhance our consumer experience," said Boudreaux, who noted that the company had gained market share in the large employer market this year. "This includes developing new external-facing applications and portals that will make it easier for members, agents and care providers to conduct business with Anthem."

Shares of the major insurers, which sell plans to large employers fell more than 4 percent on average Tuesday, in the wake of the Amazon-Berkshire-JP Morgan announcement.

Analysts at Evercore ISI said they don't expect the new three-company venture will pose as big a threat to insurers as some investors feared, writing in a note to clients "it is unlikely to cut them out completely or end up competing with them directly given barriers to forming national provider networks and industry's ongoing vertical consolidation – and instead any new solutions could complement or even be developed in partnership with (insurers)."

Even with Tuesday's pullback, the health insurance sector gained more than 7 percent for the month of January, the best start to the year for the major insurers since 2011.