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ANTM - Anthem, Inc.

We analyze a variety of stocks for their growth potential. These stocks have strong historical revenue and earnings growth trends and typically have shown strong historical capital gains. We conduct a fundamental analysis so that investors can decide whether these growth stocks would make a suitable investment.

Anthem, Inc. NASDAQ:ANTM is a large-cap health benefits company with a market cap of $66 billion and its stock trades around $470 million per day. ANTM is a growth stock with a strong history of revenue and earnings growth. ANTM pays a dividend.

Revenue and Earnings:

ANTMs revenue and earnings growth trends are shown below in Graph 1.

Graph 1. Revenue and Earnings history

The above graph shows ANTMs revenue and earnings history over the last decade along with the next two years of analysts consensus forecasts.

The company's revenue and earnings have trended higher and the analysts expect this to continue through to 2020. The earnings growth rate from 2009 to 2020 is 7.2% per year. Longer historical periods help to average out the growth rate.

Book Value and Employees:

Companies with significant growth usually display three common characteristics.

  1. Revenue continues to increase.
  2. Book value continues to increase.
  3. Employees continues to increase.

The increase in revenue is the obvious growth characteristic, but a company's expansion is also evident with an increase in its net asset value (book value) and in the number of staff employed.

ANTMs book value and employee growth trends are shown below in Chart 2.

Graph 2. Book Value and Employees history

The above graph shows that ANTMs book value and staff employed have increased over the last decade. This is a characteristic of growth stocks.

Fundamental Analysis:

Fundamental Analysis for ANTM:

ANTMs profit margin (profit to revenue ratio) is currently 4% and the company's return on equity is currently 14%.

The working capital ratio (current assets to current liabilities) is 1.6 which indicates that ANTM has sufficient working capital to meet its short-term financial commitments such as paying bills.

The total debt ratio (total liabilities to total assets) is 60% which means that ANTMs total liabilities is 60% of the value of everything the company owns.

For the 2019 fiscal year the analysts consensus earnings is $17.82 per share with $100.5 billion in revenue.

For the 2020 fiscal year the analysts consensus earnings is $21.20 per share with $111.1 billion in revenue.

The 2020 PE ratio is 14.5x (based on analysts consensus forecast earnings) with a stock price of $306.85.

The earnings growth rate from 2009 to 2020 is 7.2% per year which results in a forward PEG (PE divided by earnings growth rate) of 2.0 with a 2020 PE multiple of 14.5x. A forward PEG of 2.0 means the stock is reasonably priced as its forward PEG is in the middle of the 1.5 to 2.5 range that's common with growth stocks.

The book value is $116.50 and ANTM is trading at 2.6x book value.

ANTM pays a dividend with a forward yield of 1.3%. The company's payout ratio is 20% which means that ANTM pays out a fifth of its profits as dividends.

Bankruptcy Risk for ANTM:

The bankruptcy risk can be calculated using the Revised Z-score, which gives an indication of the likelihood of a company going bankrupt.

ANTM has the following balance sheet items; Current Assets of $34,321m, Current Liabilities of $21,965m, Total Assets of $71,571m, Total Liabilities of $43,030m, Retained Earnings of $19,988m. From the income statement the EBIT (Earnings before Interest and Tax) is $5,818m.

The Z-score is calculated using the following formula:

Z-score  =  (6.56 * X1) + (3.26 * X2) + (6.72 * X3) + (1.05 * X4)

Working Capital = Current Assets - Current Liabilities = 34,321 - 21,965 = $12,356m

Stockholders' Equity = Total Assets - Total Liabilities = 71,571 - 43,030 = $28,541m

X1 = Working Capital / Total Assets = 12,356 / 71,571 = 0.173

X2 = Retained Earnings / Total Assets = 19,988 / 71,571 = 0.279

X3 = EBIT / Total Assets = 5,818 / 71,571 = 0.081

X4 = Stockholders' Equity / Total Liabilities = 28,541 / 43,030 = 0.663

Z-score  =  (6.56 * 0.173) + (3.26 * 0.279) + (6.72 * 0.081) + (1.05 * 0.663)  =  3.3

ANTMs Z-score is 3.3 which means the company is a low bankruptcy risk stock.

Stock Price History:

ANTMs returns are shown below.

ANTMs returns:

  • 10-year Gain of 143% vs. 221% for the S&P 500.
  • Gain over the last 12-months of 22% vs. 8% for the S&P 500.
  • Loss during the previous bear market (Oct-2007 to Mar-2009) of -118% vs. -57% loss for the S&P 500

ANTMs stock price has underperformed the S&P 500 over the last decade, but outperformed the market over the last 12-months.

The stock chart below shows ANTMs stock price performance over the last decade.

Chart 1. Stock price history for ANTM

weekly Chart ANTM

Over the last decade ANTMs stock price has broadly traded higher with a sequence of rallies and pullbacks.

Summary

ANTMs revenue and earnings have trended higher over the last decade and the analysts expect this continue. ANTM is a profitable company with a low risk of bankruptcy based on its Z-score.

ANTM pays a dividend and is reasonably priced based on its growth potential. The stock has underperformed the market over the last decade.

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