Aetna Guides Higher - Analyst Blog

Based on solid performances in October and November, health insurer Aetna Inc. (AET) raised the 2011 and 2012 expectations.

Aetna raised the 2011 earnings expectation to $5.15 per share from $5.00 per share guided earlier. The Zacks Consensus Estimate for 2011 is $5.04 per share, on the conservative side. For 2012, Aetna now expects to deliver earnings of $5.00 per share, in tune with the Zacks Consensus Estimate. The expectation was raised from $4.80 per share.

Though the company has raised the earnings expectation, it expects  members from its commercial administrative services contracts to be lower by 0.5 million in first quarter of 2012. Aetna believes large corporate customers might choose plans with fixed costs due to soft economic conditions.

Aetna also estimates medical membership to increase to 18.4 million at fourth quarter 2011 end but then fall to 17.9 million at first quarter 2012 end. However, the company expects the medical membership to grow over the next nine months in 2012.

The company also expects Medicare members to increase by 35,000 while Medicaid members to decrease by 80,000 in the first quarter 2012.

However, despite the increase in earnings expectation there was no spurt in the share price. It is likely possible that the increased expectation was offset by lower medical membership. The share price of Aetna Inc. inched down 0.8% to close at $39.28 as on Wednesday. 

End of last month, another health insurer UnitedHealth Group Inc. (UNH) guided 2012 earnings in the range of $4.55 to $4.75 besides affirming its 2011 full year guidance of $4.52 to $4.57.

Aetna reported a strong third quarter and results exceeded the Zacks Consensus Estimate on the back of declining utilization, strong performance across all the product lines, disciplined pricing and medical cost trends. The Zacks Consensus Estimate for fourth quarter 2011 is 86 cents per share.

Over the last 7 days, only 1 analyst has raised his estimate upward while for 2012 none revised their estimates. We expect the increased guidance might encourage analysts to push their estimates higher.

Aetna is making very good progress in its Medicare business. The lifting of the CMS sanctions in June and the acquisition of Genworth's Medicare Supplement business will advance its Medicare platform. Aetna is also aggressively looking to generate incremental fee revenues by managing the infrastructure necessary for care organizations. Aetna is growing its international business to diversify its risks.

We retain our long term Outperform recommendation on Aetna Inc. The quantitative Zacks #1 Rank (short-term Strong Buy rating) for the company indicates upward pressure on the shares over the near term.

Based in Hartford, Connecticut Aetna Inc is a provider of healthcare, dental, pharmacy, group life, disability, and long-term care benefits.

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