Tags: Aetna | Wall | Street | AET

Aetna Has a History of Wall Street Surprises

By    |   Thursday, 17 Nov 2011 12:46 AM

Health insurer Aetna (AET) has become a stock market favorite after a recent history of surprises when the earnings season comes around. For a stock which has consistently beaten Wall Street estimates, the share price seems to remain at an attractive valuation.

Aetna is a health insurance provider that covers about 18 million individuals. Types of insurance offered include dental, mental health and vision coverage as well a general health insurance. The company provides coverage primarily through employer-sponsored health plans. Aetna also covers about 400,000 Medicare advantage customers. Two-thirds of the Medicare participants are through employer plans and the balance are individually enrolled Medicare members.

For the first three quarters of 2011, Aetna generated revenues of $25.2 billion, down $500 million from $25.7 billion for the first nine months of 2010. However, net income year-to-date was $4.19 per share, up 16 percent from the 3.61 earned in the same period a year earlier. The full year earnings forecast is $5.02 per share, compared to $3.68 earned in 2010.

Aetna is generating earnings growth by improving the company's economic efficiency, which can be measured by the medical benefit ratio, the percentage of premiums paid out to cover insurance claims. For the first nine months of the year the ratio was 78.9 percent, down from 81.8 percent.

Beating expectations

For each of the first three quarters of 2011, actual earnings results significantly surpassed the consensus estimate from Wall Street. The estimate was exceeded by amounts ranging from 21 to 47 percent. To a certain extent, Aetna management works to keep expectations low, but the results so far in 2011 are impressive. The company has been earning about $1.40 per share for each of the first three quarters and only needs 88 cents of earnings to again exceed for the fourth quarter.

Results could turn downward for the company. In 2008 net income was down 20 percent as the effects of the recession resulted in operating expenses increasing faster than revenues. Aetna is now in a period of flat revenue growth but has been able to reduce expenses.

Recently, the analysts at Goldman Sachs upgraded Aetna to conviction buy from buy. They increased the target price to 30 percent above the current share price.

The company next reports on Jan. 26.

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Health insurer Aetna (AET) has become a stock market favorite after a recent history of surprises when the earnings season comes around. For a stock which has consistently beaten Wall Street estimates, the share price seems to remain at an attractive valuation. Aetna is a...
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2011-46-17
Thursday, 17 Nov 2011 12:46 AM
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