Analyst Note| Julie Utterback, CFA |
Narrow-moat Anthem reported second-quarter operating results that beat consensus, and the firm raised its 2021 guidance for the second time this year. At first glance, those trends do not look significant enough to offset a potential increase in the U.S. corporate tax rate, which we plan to start modeling in 2022 and beyond. Therefore, we may trim our fair value estimate slightly, but any change appears likely to be limited to the low single digits on a percentage basis.
In the quarter, Anthem turned in $7.03 of adjusted EPS, or well above FactSet consensus of $6.34 on lower-than-expected medical utilization. While lower than management expected, medical utilization appeared slightly higher than normal, pre-COVID-19 levels, which represents a turning point since the pandemic began. Also, these results reflected medical membership increasing 4% year over year on the strength of Anthem's government programs (17% growth primarily in Medicaid and Medicare Advantage) offset by weakness in commercial membership (1% decline). In total after the acquisition of MMM (a leading provider of Medicare Advantage and Medicaid plans in Puerto Rico), Anthem's medical membership stood at 44.3 million members at the end of June, overtaking Unitedhealth (44.1 million) as the largest health insurer on a U.S. medical membership basis this quarter.