Health and Science

Health insurer Anthem tops profit estimates, raises forecast

Key Points
  • Anthem reported a better-than-expected quarterly profit on Wednesday.
  • The health insurer kept a tight leash on patient payouts, prompting Anthem to raise its full-year profit forecast.
  • The company said it was prioritizing investments throughout 2018 on infrastructure that can quickly respond to the evolving needs of its customers.
Andrew Harrer | Bloomberg | Getty Images

Anthem reported a better-than-expected quarterly profit on Wednesday as it kept a tight leash on patient payouts, prompting the health insurer to raise its full-year profit forecast.

The company said it was prioritizing investments throughout 2018 on infrastructure that can quickly respond to the evolving needs of its customers - a sign it may continue to steer clear of major acquisitions.

The healthcare sector has been rapidly consolidating over the past year with companies looking for new ways to bolster profits as the industry faces greater scrutiny for rising costs.

Rival Aetna is expected to be bought for $69 billion by pharmacy chain CVS Health and Cigna has proposed acquiring Express Scripts, the largest U.S. independent pharmacy benefit manager, for $54 billion.

Last year, Anthem announced a plan to launch an in-house pharmacy benefit management business in 2020.

On Wednesday, the company said its benefit expense ratio improved to 81.5 percent from 83.7 percent in the same period a year ago. The metric measures an insurer's expenditure on claims against the premiums it earns.

The decrease was primarily driven by the return of a health insurance tax in 2018 and improved medical cost performance across its businesses, the company said.

Piper Jaffray analyst Sarah James said she was encouraged by the lower medical loss ratio, believing that this could be evidence of the beginning of changes under Chief Executive Gail Boudreaux, who joined the company late last year.

"This was a clean and positive quarter for Anthem," she added.

Anthem's net income rose 30 percent to $1.31 billion, or $4.99 per share, in the first quarter ended March 31.

Excluding items, the company earned $5.41 per share, way above the average analyst estimate of $4.88, according to Thomson Reuters I/B/E/S.

Medical enrollment totaled about 39.6 million members at March 31, a fall of 2.5 percent, driven predominantly by a reduced footprint in Obamacara market.

Total revenue was largely flat at $22.54 billion.

The insurer said it now expects 2018 adjusted net earnings to be greater than $15.30 per share, up from its previous estimate of earnings of greater than $15 per share.

Anthem shares were up nearly 1 percent in light premarket trading. They are up 33.6 percent in the past 12 months but flat year to date.