Anthem sees higher costs, persisting uncertainty due to COVID-19; shares dip

FILE PHOTO: The logo for health insurance provider, Anthem, is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., April 9, 2019. REUTERS/Brendan McDermid

(Reuters) - U.S. health insurer Anthem Inc ANTM.N on Wednesday warned of higher-than-normal medical costs in the fourth quarter, driven by coronavirus infections and recovery in demand for elective medical procedures, sending its shares down about 3%.

However, it maintained its 2020 adjusted profit view of over $22.30 per share and even said it expects to grow at least at the lower range of its long-term growth outlook of 12%-15% next year.

Anthem's preliminary outlook is relatively optimistic compared to rivals UnitedHealth Group Inc UNH.N and Centene Corp's CNC.N, both of which took a conservative stance for 2021 growth expectations, Stephens analyst Scott Fidel said.

“The comment about being at the lower end (of the growth outlook) was just really due to an overabundance of caution given the uncertainties related to the entire pandemic situation,” Anthem Chief Financial Officer John Gallina said during a post-earnings call.

During the third quarter, Anthem reported a one-time charge of $607 million related to “business optimization”, saying it was reimagining its office space and reducing footprint by transitioning the majority of its employees to work from home in response to the COVID-19 pandemic.

The company said it was a step towards its goal to achieve 11% to 12% selling, general and administrative (SG&A) costs to sales ratio by 2023. SG&A includes costs related to staff salaries, advertising and rent, among others.

“The company is currently trending well above 13%, so that would be a meaningful support mechanism for them in terms of driving their EPS growth in 2021 through 2023,” Fidel said.

Excluding items, Anthem earned $4.20 per share in the quarter ended Sept. 30, ahead of the average analysts’ estimate of $4.15.

Reporting by Manojna Maddipatla in Bengaluru; Editing by Shinjini Ganguli