Anthem Is Being Sued, So I Will Wait For The Outcome

Jun. 6, 2019 9:47 AM ET | About: Anthem, Inc. (ANTM), Includes: CI

Kurt Pollet

Summary

Anthem attempted to takeover Cigna back in 2015, but the deal was blocked by the antitrust division of the U.S. Justice Department.

Anthem is being sued by Cigna. In a counter-suit, Anthem is suing Cigna.

Anthem is a profitable company with solid growth expectations, but until the court case is finalized, I’m on the sidelines.

Anthem, Inc. (NYSE:ANTM) is a profitable company in the health benefits industry that is currently engaged in a court case for the failed takeover of Cigna (NYSE:CI). Anthem is being sued by Cigna for $16 billion, which includes a $1.85 billion breakup fee. Anthem is counter-suing Cigna for $20 billion claiming that Cigna refused to provide information, which caused the deal to be blocked. Until the court case is finalized, I’m going to be cautious and sit on the sidelines.

Financials

Anthem has a demonstrated history of growth with more growth expected heading into 2020. The company operates profitably, but with low profit margins of around 4% and modest returns on equity of around 14%.

The balance sheet shows that Anthem operates with moderate debt levels. The company’s long-term debt is currently $17.9 billion which represents 24% its total asset value and its total liabilities represents 59% of its total asset value.

Based on earnings from net income (rather than operational), Anthem’s 2020 forward PE multiple is 13.1x with a stock price of $278. The company’s full year trailing PE multiple is 19.1x and its book value multiple is 2.4x. These multiples imply that Anthem is reasonably priced.

The company pays a dividend with a forward yield of 1.22% and a trailing yield of 1.10%. The dividend payout ratio is 20% (which is little on the light side as dividend-paying companies usually pay out 30% or more).

Anthem has a history of revenue growth with its revenue increasing 5.1% per year over the last decade. The chart below visually shows Anthem’s revenue and earnings trend over the last decade along with the next two years of consensus forecasts. The earnings per share used are net income (they are not operational earnings which some forecasts state).

https://seekingalpha.com/article/4268675-anthem-sued-will-wait-outcome