Will Growth Measures at Aetna (AET) Drive Q2 Earnings Beat? - Analyst Blog


Aetna Inc. ( AET ) is scheduled to report its second-quarter 2014 results before the opening bell on Jul 29.

In the last quarter, this health insurer delivered a 26.9% positive earnings surprise. The average beat for the trailing four quarters is 8.4%.

Will Aetna deliver a positive earnings surprise this quarter as well?  Let's see what factors might have influenced the earnings report this time around.

Why a Likely Positive Surprise?

Our proven model shows that Aetna is likely to beat earnings in its upcoming release because it has the right combination of key factors.

Zacks ESP: Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.48%. This is a meaningful and leading indicator of a likely positive earnings surprise for this company.

Zacks Rank: Aetna carries a Zacks Rank #2 (Buy). The stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Aetna's Zacks Rank #2 and +2.48% ESP make us confident of an earnings beat.

What is Driving Better-than-Expected Earnings?

Second-quarter earnings at Aetna is not likely to have been driven by any particular factor but by a host of growth measures undertaken over the past several months. Aetna's earnings will be helped by a disciplined focus on cost control and growth of well-managed care organizations - the accountable care organizations - expansion in government programs, such as Medicare for the elderly and Medicaid for the poor as well as continued accretion from Coventry acquisition (closed last year).

The quarters' results will also benefit from higher enrollment expected in commercial self-insured membership as well as continued sign up on private exchanges.

Aetna's use of capital for share buyback will provide an extra cover to earnings.

However, other factors such as nondeductible insurance taxes, Affordable Care Act prescribed Medicare Advantage funding pull backs and commercial underwriting changes could dampen second-quarter earnings growth to some extent.

Other Stocks to Consider

Here are some other companies in the health care space worth considering as our model shows that these have the right combination of elements to post an earnings beat this quarter.

WellPoint Inc. ( WLP ) has an earnings ESP of +3.97% and carries a Zacks Rank #2 (Buy).

WellCare Health Plans, Inc. ( WCG ) has an earnings ESP of +3.47% and carries a Zacks Rank #3.

Cigna Corp. ( CI ) has an earnings ESP of +2.16% and carries a Zacks Rank #3.

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WELLPOINT INC (WLP): Free Stock Analysis Report

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

CIGNA CORP (CI): Free Stock Analysis Report

WELLCARE HEALTH (WCG): 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: WLP , AET , CI , WCG



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