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Credit analyst suggests adding Anthem paper on any weakness
By Ronda Fears
Nashville, March 11 - Credit quality at Anthem Inc. (Baa2/BBB+) is strong, so despite concerns about risks involving litigation and cost pressures, Kathy Shanley, senior bond analyst at Gimme Credit, suggests adding the company's paper on any weakness.
The "credit quality is benefiting from the increasing scale of its geographic reach, which now includes the ownership of Blue Cross and Blue Shield licenses in nine states," Shanley said in a report Tuesday.
"Anthem is not immune to the trends facing the health care industry. The company risks a backlash from its customers and/or regulators if it is too aggressive in raising prices. Litigation risk is another concern.
"Despite these concerns, we believe Anthem's increasingly diversified business mix affords it the financial flexibility to maintain strong triple 'B' credit quality, and we would consider adding this credit on weakness."
Shanley noted that Moody's changed its ratings outlook for Anthem to positive in January, and the company's 10-K filed this week suggests capitalization is well-managed.
Industry trends, including cost pressures and litigation, may make incremental improvement more difficult to achieve this year, however, the analyst said.
"To maintain a credit profile in line with rating agency expectations, we expect Anthem will keep its debt/capital ratio under 30%, but debt reduction is not the top priority," she noted.
"In a recent investor presentation Anthem ranked paying down additional debt fourth, behind investment in new businesses, acquisitions, and stock repurchase. Common stock buybacks totaled $256 million in 2002."
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