Insider Buying: $2 Million Reasons this CEO thinks her Company is on Sale

Everybody loves a sale, something of value at a good price.

Anthem, Inc.’s (ANTM) Chief Executive Officer (CEO) Gail Boudreaux must feel ANTM is a bargain. The healthcare company’s CEO opened her checkbook and wrote a $2 million check to purchase 7,600 shares of ANTM at an average price of $263.70. 1

The health care benefits company’s shares have tanked in recent days, falling from $305.99 at the ends of regular trading hours on January 21, 2020 to an intraday low of $261.69 on the 30th. That’s nearly a 15% haircut in just eight trading days, living up to an old saying.

Stocks eat like birds on the way up but go to the bathroom like an elephant on the way down. The actual version uses a touch more colorful language.

Wall Street ripped the stock lower after reporting their fourth quarter earnings’ results. Anthem hit the street’s earnings per share (EPS) target of $3.88 and surpassed the consensus sales view of $27.05 billion at $27.13 billion. 2

What’s not to like about that?

David Windley at Jefferies says the company’s guidance for 2020 was below expectations. The analyst told clients he expected to see management forecast EPS of $22.70 for 2020. Instead, the number came in slightly lower at $22.30 due to rising expenses. 3 Wow, 40 cents equaled more than $40 chopped off the top of Anthem’s stock price. Boudreaux revealed $2 million reasons why she feels it could be an overreaction.

Let’s see what ANTM might do for Boudreaux and new investors in the next year if the company hits management’s guidance. First, the consensus 12-month price target is $342.22 or 28.44% upside, not including the current dividend of $3.80. 4

Despite Anthem posting an EPS forecast of $22.30 for this year, the current consensus is a touch higher at $22.52. 5 Since March 2014, investors have been willing to pay an average of 15.914 times earnings (P/E) with a maximum of 20.72 and a low of 11.36.

Using the street’s view of $22.52, ANTM shares would trade at $255.83 using the low P/E of 11.36, at $358.39 using the average number of 15.914, and top out at $466.61 with the max value of 20.72. With management’s number of $22.30, the range looks like this:

  • Low: $253.33
  • Average: $354.89
  • High: $462.06

With shares closing trading at $266.43 as we type on February 3, 2020, Anthem, Inc. offers limited downside with significant upside based in its recent P/E history and 2020 consensus or management’s EPS estimate.

Moving up the income statement, analysts see Anthem generating sales of $116.88 billion this year. Again, going back to March 2015, ANTM has traded with an average price to sales (P/S) ratio of 0.5983, a low of 0.38, and a maximum 0.88.

Using price to sales, the potential is less attractive with a bottom price target $175.16, an average of $275.78 and maximum upside of $405.61. Today, investors are paying 0.65 times sales, which would put ANTM at $299.62 using the street’s consensus revenue target for 2020.

Outlook: Anthem, Inc. (ANTM) should offer investors limited downside based on its lowest price to earnings ratio in the last five years. On the upside, we see a possible range of $299.62 with today’s price to sales ratio to $354.89 using the five-year average P/E and management’s 2020 EPS guidance.

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