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Aetna (AET) Earnings Beat Estimates in Q4, Revenues Miss

Health insurer Aetna Inc.AET reported fourth-quarter 2016 earnings of $1.63 per share, surpassing the Zacks Consensus Estimate of $1.45 and improving 19% year over year. The earnings upside was primarily driven by higher fees and other revenue in Aetna's Health Care segment.

Better-than-expected earnings drove up the share price by 1.92% in pre-market trading .

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Aetna posted operating revenues of $15.72 billion, a tad below our consensus estimate of $15.9 billion, but up 4% year over year.

Revenue growth was primarily led by higher premiums in Aetna's Health Care segment.

Total operating expenses were $3.6 billion, 12.8% higher year over year, due to increased health care cost, and higher selling expense, and general and administrative expense.

Adjusted operating expense ratio was 19.8%, down from 20.5% in the year-ago quarter. The reduction in operating expense ratio was due to the increase in revenue coupled with the company's focus on expense management that paid off.

Fourth-quarter pre-tax operating margin was 6.4%, up 40 basis points year over year.

Medical membership at Dec 31, 2016 remained flat sequentially at 23.1 million.

Full-year 2016 earnings per share of $8.23 increased 7% year over year, while revenues of $63.05 billion were up 5% year over year.

Segmental Performance

Aetna's Health Care segment recorded operating revenues of $15 billion, up 4.2% year over year. The revenue increase was primarily due to higher premium yields and membership growth in Aetna's Government business. This was somewhat offset by membership loss in Aetna's Commercial insurance business.

Operating earnings increased 18.3% from the year-ago quarter to $582 million.

Aetna's Group Insurance operating revenues were up by just 0.3% year over year to $621 million. Operating earnings, however, increased 50% year over year to $33 million, due toimproved underwriting margins in Aetna's long-term care products, partially offset by lower underwriting margins in life products.

At Large Case Pensions, operating revenues were down 4.5% year over year to $64 million. Operating earnings were up 25% year over year to $5 million.

Financial Position

Total assets were $39.2 billion as of Dec 31, 2016 compared with $53.5 billion as on Dec 31, 2015.

Total debt to consolidated capitalization ratiowas 53.6% at Dec 31, 2016 compared with 32.6% at Dec 31, 2015, due to the issuance of $13 billion of senior notes to partially fund the proposed acquisition of Humana.

Days claims payablewere 54 at Dec 31, 2016, down 3 days sequentially.

Aetna Inc. Price, Consensus and EPS Surprise

Aetna Inc. Price, Consensus and EPS Surprise | Aetna Inc. Quote

Recent Developments

Federal authorities recently blocked the merger of the company with Humana Inc. HUM , on concerns that the merger would lead to higher prices and throttle competition in Medicare Advantage markets. Notwithstanding the latest hit to the merger, Aetna is planning to appeal the case. The company also has some back up plans in case the deal doesn't get through. We expect the company may look to expand in Medicaid, by way of acquiring Medicaid-centric companies.

Aetna carries a Zacks Rank # 4 (Sell).

Upcoming Releases

From the health care sector that you may consider the following stocks as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Anthem Inc. ANTM will report fourth-quarter and full-year 2016 earnings results on Feb 1. The company has an Earnings ESP of +6.29% and a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank(Strong Buy)stocks here .

Molina Healthcare Inc. MOH has an Earnings ESP of +5.33% and a Zacks Rank #3. The company is expected to report fourth-quarter earnings results on Feb 13.

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Aetna Inc. (AET): Free Stock Analysis Report

Humana Inc. (HUM): Free Stock Analysis Report

Molina Healthcare Inc (MOH): Free Stock Analysis Report

Anthem, Inc. (ANTM): 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 Nasdaq, Inc.


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

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