Anthem increased third-quarter profit by 4 percent and beat Wall Street forecasts as the number of people the health insurer covers edged slightly higher, driven by enrollment in government health plans.
The Blue Cross-Blue Shield insurer also boosted its adjusted 2015 net income forecast for the third time this year, to $10.10 to $10.20 per share. That's up from its July forecast for more than $10 per share, but still below the $10.20 Wall Street is anticipating. The company cited lower profit margins expected in the fourth quarter.
Wall Street wasn't satisfied, driving shares down $5.92, or 4.1 percent, to $138.77 in midday trading Wednesday.
"The quarter looks a lot weaker than the headline beat would suggest since it was driven by (lower-than-expected) operating costs and taxes," noted Goldman Sachs analyst Matthew Borsch.
Leerink Partners analyst Ana Gupte agreed, but wrote in an investors' note that revenue and total membership were both slightly above expectations.
Anthem, which is planning to buy rival Cigna Corp., reported third-quarter net income of $654.8 million, or $2.43 per share. Adjusted earnings per share of $2.73 was 40 cents better than analysts projected.
The Indianapolis company, the nation's second-largest health insurer, reported operating revenue, which excludes investment income, totaling $19.77 billion. That's up 7.6 percent from $18.37 billion last year and above Street forecasts for $19.71 billion.
Anthem now expects full-year revenue to be $78 billion.
It added 174,000 members, or 0.5 percent, since the second quarter, for a total of 38.7 million.
The gain came from Anthem's government business, which the company continues to rely on for growth. Anthem said Medicaid enrollment increased by 15.5 percent, Medicare enrollment by 2.8 percent and Federal Employee Program enrollment by 2 percent in the quarter. Their combined enrollment has increased by 856,000 since last December.
That growth was partially offset by an 8.8 percent enrollment decrease in the individual customer business in the quarter. Chief Financial Officer Wayne DeVeydt blamed "unsustainable" premium pricing by some rivals persisting longer than anticipated. Because Anthem doesn't plan to cut prices to gain more members, it expects its individual insurance market share "will deteriorate" next year, he told analysts on a conference call.
Anthem Inc., which changed its name from WellPoint last year, administers the state-and-federally funded Medicaid program for poor and disabled patients in several states and also provides Medicare Advantage coverage.
Medicaid has become a prime target for growth because many states are expanding eligibility for the program as part of the health care overhaul, the federal law bringing insurance coverage to millions more people. Anthem also sells commercial coverage in 14 states through public insurance exchanges created by the overhaul.
Anthem said it expects in 2016's second half to complete its $48 billion purchase of Cigna, part of a wave of consolidation across the sector. Aetna plans to buy Medicare Advantage coverage provider Humana for about $35 billion.
The deals, now under regulatory review, have drawn concern from politicians and some members of Congress over how they may affect consumers' coverage options and whether insurers will raise premiums as they grow and increase their bargaining clout.
Follow Linda A. Johnson https://twitter.com/lindaj_onpharma