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Aetna Beats EPS, Raises Outlook - Analyst Blog

By: Zacks.com
Posted: 10/25/2012 11:20:00 AM
Referenced Stocks: AET;CI;HUM;UNH;WLP

U.S. health insurer Aetna Inc. ( AET ) reported its third quarter 2012 earnings of $1.55 per share, way ahead of the Zacks Consensus Estimate of $1.34 per share. Earnings also increased 11% year over year.

The better-than-expected earnings of the company were the results of revenue growth, higher underwriting margins, increased membership coupled with lower operating costs.  

Aetna's total revenue for the reported quarter grew 6% year over year to $8.9 billion, led by higher Health Care premiums in each of the company's Commercial, Medicare as well as Medicaid businesses. Reported revenue was in line with the Zacks Consensus Estimate.

Operating expenses were $1.64 billion, down 9.7% year over year. Operating expense ratio was 18.3 % compared with 20.0% in the prior-year quarter.

Pre-tax operating margin was 10.2 % for the reported quarter, down 50 basis points year over year.

Segment Performance

Aetna's Health Care segment recorded revenues of $8.24 billion, up 5.9% year over year. Total premium increased 7.0% year over year to $7.2 billion, primarily attributable to an increase in Medicare premium and higher Commercial premium yields.

Total medical membership increased by 149,000 sequentially to 18.178 million following the acquisition of Genworth Financial's Medicare Supplement business.

The company's Group Insurance revenues climbed 8.5% year over year to $530.8 million. The segment's operating earnings plummeted 23% year over year to $29.3 million.

At Large Case Pensions, revenues declined 3.3% year over year to $123.9 million and operating earnings fell 16% year over year to $3.7 million.


2012 Guidance Update

Following the better-than-expected performance, Aetna raised its 2012 earnings expectation to $5.10 from the earlier guidance range of $5.00-$5.10 per share.

Our Take

Going forward, we expect Aetna to post favorable earnings. The company has made considerable investments in products and technology, with an intention to extend its core health business and also to capitalize on exciting new consumer and provider opportunities emerging in the marketplace.

Aetna's strong operating results and significant capital generation will allow it to make further investments. We expect the company to continue performing well in 2012 backed by the performance of the Medicaid and Medicare segments, fast growing health services segment and a strong balance sheet.

Last week, Aetna's peer UnitedHealth Group Inc. ( UNH ) reported its third quarter 2012 earnings of $1.50 per share, significantly ahead of the Zacks Consensus Estimate of $1.31 per share. Earnings also grew 9% year over year. Other peers Cigna Corp. ( CI ), WellPoint Inc. ( WLP ), Humana Inc. ( HUM ) are expected to release their earnings soon.

Aetna currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares



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

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