Aetna's Earnings Miss by a Penny, Revs Up - Analyst Blog


Aetna Inc. ( AET ) reported fourth-quarter 2013 earnings of $1.34 per share, missing the Zacks Consensus Estimate by a penny. Earnings were, however, up 43% year over year. The year-over-year growth was owing to earnings accretion from the Coventry acquisition as well as higher underwriting margins primarily in the Commercial business, partially offset by lower underwriting margins in the Medicare business.

Including one-time items, net income came in at $1.00 per share, up 79% year over year.

Aetna's total revenue for the reported quarter grew significantly by 33% year over year to $13.1 billion, led by higher Health Care premiums from the acquisition of Coventry as well as growth in Medicare membership and underlying Commercial Insured premium yield growth. Reported revenues were in line with the Zacks Consensus Estimate.

The operating expense ratio declined 170 basis points year over year to 18.0%. The improvement in the operating expense ratio came on the back of operating revenue growth from the acquisition of Coventry and continued execution of the company's expense management initiatives.

Aetna ended 2013 with record medical membership of nearly 22.2 million up 22.0% year over year and the company now expects to add another 50,000 members by the end of first-quarter 2014.

Full Year Highlights

Full-year 2013 operating earnings came in at $5.85 per share, two cents ahead of the Zacks Consensus Estimate and up 14% year over year. Earnings fell in line with management's projection of $5.80-$5.90 per share.

Full-year revenues of $47.3 billion increased 29% year over year and was a tad higher than the Zacks Consensus Estimate of $47.5 billion. Results also outshone the company's own estimate of $47.0 billion.

Segmental Performance

Inclusion of Coventry revenues as well as growth in Medicare membership drove 49.4% year-over-year revenue growth in Aetna's Health Care segment which recorded revenues of $12.4 billion.

Operating earnings increased 60.0% year over year to $493.0 million, due to earnings accretion from Coventry, along with higher underwriting margins in its Commercial business.

Aetna's Group Insurance revenues climbed 10% year over year to $591.3 million. The segment's operating earnings increased by 4.2% year over year to $47.2 million.

At L arge Case Pensions , revenues slipped 9.3% year over year to $119.3 million. Operating earnings increased 13.6% year over year to $5.0 million.

Share Repurchase Update

In the reported quarter, Aetna spent $333 million to buy back 5.2 million shares.

2014 Earnings Guidance

Aetna reiterated its 2014 EPS of minimum $6.25 per share.

Our Take

Though Aetna missed the earnings expectations, overall results painted a favorable picture of the company's operating profitability. Revenues went up, as also number of members served by the company. However, healthcare costs rose more than the increase in revenues which adversely affected bottom-line results.

In 2014, earnings are expected to be impacted by headwinds related to the Affordable Care Act. However, Aetna should benefit from growth in the Medicaid and Medicare segments, fast-growing health services segment, and an expanding provider network. Aetna is witnessing earnings accretion from the Coventry acquisition. The acquisition of Coventry has enabled the company to position itself in the fast-growing government businesses. Aetna has also made considerable investments in products and technology, intending to extend its core health business and capitalize on exciting new consumer and provider opportunities emerging in the marketplace. A strong balance sheet with low leverage is another positive.

Aetna currently retains a Zacks Rank #3 (Hold). Other health insurers who have already reported their quarterly earnings results include UnitedHealth Group Inc. ( UNH ) and WellPoint Inc. ( WLP ), both beating the Zacks Consensus Estimate by a penny. Another insurer Cigna Corp. ( CI ) with a Zacks Rank #2 (Buy), due to release its earnings tomorrow, is worth considering.

AETNA INC-NEW (AET): Free Stock Analysis Report

CIGNA CORP (CI): Free Stock Analysis Report

UNITEDHEALTH GP (UNH): Free Stock Analysis Report

WELLPOINT INC (WLP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AET , CI , UNH , WLP

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