Earnings Growth, Execution Fetch Anthem An Upgrade From BMO

Health insurer Anthem Inc ANTM is a multiregional powerhouse in commercial and Medicaid products, with an aggressive approach toward acquisitions and accretive deployment of capital, according to BMO Capital Markets. 

The Analyst

Analyst Matt Borsch upgraded Anthem from Market Perform to Outperform and increased the price target from $275 to $290.

The Thesis

Anthem can further strengthen its local market share and achieve industry-leading growth thanks to $4 billion in annual pharmacy cost savings, Borsch said in a Monday note. (See the analyst's track record here.) 

Partnerships with other health plans such as non-Anthem Blue Cross plans are contributing to better earnings growth, the analyst said. New fee-based arrangements with health plans and other entities could also help, he said.

The health insurer holds the opportunity for further market share gains if it captures a "substantial share" of $80 billion in expected new Medicaid revenue, Borsch said. 

"We also highlight optionality on several fronts including 'upside only' potential outcomes from pending litigation (ESRX and Cigna) as well as the eventual likelihood of consolidation of other Blue plans by Anthem as scale economics become increasingly important." 

The sell-side firm views the valuation of Anthem shares as attractive.

The Price Action

Anthem shares have gained about 8 percent year-to-date.

The stock was trading up 2.26 percent to $247.64 at the time of publication Monday.

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