Anthem stock takes hit despite positive quarterly earnings report

Indianapolis-based Anthem beat second quarter expectations and raised its 2019 forecast again, but shares of the health insurer slid Wednesday after it outlined challenges in its growing Medicaid business.

The health insurer also said Wednesday that the start of its new pharmacy benefit manager is going better than expected, and its performance contributed to its forecast increase.

Despite the positive report, the company’s shares dropped 4.5% Wednesday morning, to $289.14 each.

Analysts said the negative stock reaction could be attributed to concerns about medical cost.  Anthem reported a 10% decrease in operating profit from its operations that sell government health plans. The decline was driven by rising medical cost trends in Medicaid in some states.

The Blue Cross-Blue Shield insurer said it has added nearly 700,000 Medicaid customers over the past year, but expenses were coming in higher than expected in a handful of states. Chief Financial Officer John Gallina told analysts the issue was “very manageable,” and he expected the business’s profitability to improve in the second half of the year.

The concerns overshadowed positive news about the successful launch of Anthem’s new pharmacy benefits business.

Pharmacy benefit managers, or PBMs, run prescription coverage for employers, insurers and other big clients. Anthem decided to start one called IngenioRx, with help from CVS Health Corp., after splitting with Express Scripts, which used to run prescription benefits for the insurer. The insurer began moving customers over to the new company on May 1 and has said it expects more of an earnings boost from that later this year.

Anthem now expects full-year earnings adjusted for one-time items to exceed $19.30 per share. That an increase from the greater than $19.20 per share it forecast in April.

Analysts expect, on average, earnings of $19.29 per share, according to FactSet.

All the major health insurers now run their own PBMs as part of a broader push to control health care costs. Businesses that manage prescription drug coverage can give the insurers more data on their customers and help them better manage their care.

Anthem covers more than 40 million people and runs insurance plans in several states, including big markets like California and New York.

Profit in the second quarter climbed 8%, to $1.14 billion, and adjusted earnings per share totaled $4.64.

Operating revenue, which excludes investment gains, climbed 11%, to $25.18 billion.

All of that topped Wall Street forecasts. Analysts there were expecting, on average, earnings of $4.61 per share on $24.7 billion in revenue.

But Jefferies analyst David Windley said in a research note that Anthem narrowly beat earnings expectations thanks to better-than-expected control of selling, general and administrative expenses, which fell 4% in the quarter.

The insurer’s results also were helped by nearly 8% growth in its fully insured business, which now covers 15.4 million people.

Fully insured coverage includes plans sold to small businesses. It is generally more profitable for insurers than the coverage that accounts for most of Anthem’s enrollment: plans for large employers who pay their own claims and leave the insurer to administer the plan.

Rising costs from the company’s Medicaid business contributed to a 15% jump in benefit expenses, which climbed to about $20.4 billion in the quarter. Company leaders told analysts the insurer faces challenges to that business in “a handful” of states.

Before Wednesday, Anthem’s stock had increased 15% since the beginning of 2019 and climbed past $300 to reach new all-time highs earlier in the year.

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