Markets
CI

Aetna Beats on Q2 Earnings, Misses Revenue, Ups Guidance - Analyst Blog

An image of a stock price rising in value
Credit: Shutterstock photo

Health insurer Aetna Inc.AET reported second-quarter 2015 earnings of $2.05 per share, way ahead of the Zacks Consensus Estimate of $1.84 per share. Earnings were up 21% year over year.

Aetna Inc. - Earnings Surprise | FindTheBest

Better-than-expected earnings were primarily backed by higher underwriting margins at Aetna's Health Care and Large Case Pensions business, partially offset by an increase in operating expenses.

Behind the Headlines

Aetna's operating revenues of $15.1 billion missed the Zacks Consensus Estimate of $15.4 billion, but increased 4% year over year. The increase in operating revenues was the result of higher Health Care premium yields as well as membership growth in Aetna's Government business, partially offset by membership losses in Aetna's middle-market Commercial Insured products.

The operating expense ratio increased 70 basis points year over year to 18.3%, primarily due to higher investment spending that outpaced an increase in operating revenue.

Pretax operating margin was 8.7% for the second quarter compared with 7.6% in the year-ago quarter.

Aetna ended the quarter with medical membership of 23.7 million, representing a 2.5% year-over-year increase. Growth in Commercial Insured and Government products led to the increase in enrollment.

Segmental Performance

Aetna's Health Care segment recorded revenues of $14.4 billion, up 5% year over year, due primarily to higher premium yields as well as membership growth in the Government business. The growth was partially offset by membership losses in Aetna's middle-market Commercial Insured products.

Operating earnings increased 21.2% from the year-ago quarter to $708 million.

Aetna's Group Insurance revenues climbed 0.4% year over year to $628.9 million. Operating earnings decreased 26.1% year over year to $44.8 million due to lower underwriting margins in Aetna's Life and Long-term Care products as well as lower net investment income.

At Large Case Pensions , revenues decreased 3.1% year over year to $90.3 million. Operating earnings increased 15% year over year to $6.2 million.

Capital Deployment

Aetna repurchased shares worth $100 million during the quarter.

2015 Guidance Raised

Inspired by strong results, Aetna upped its projection for operating earnings per share to at least $7.40 from the earlier guidance of $7.20-$7.40. This is the third time that the 2015 earnings projection has been raised.

Our Take

On the strength of portfolio diversification, continued progress in integrating the Coventry business, pricing discipline and solid execution, the company remains well poised for the long run. Given its solid performance, the company has raised its earnings expectation.

We also anticipate that the company will gain in terms of membership enrollment in its Commercial and Government businesses. Strong capital management will also drive the bottom line.

During the quarter, the company announced the acquisition of Humana Inc. HUM . The combination of the two majors should be synergistic, as the new entity will command the position of the second-largest managed care company in the U.S.

Aetna carries a Zacks Rank #3 (Hold).

Peer Performance

The bottom line at Cigna Corp. CI and UnitedHealth Group Inc. UNH outperformed the respective Zacks Consensus Estimate in the second quarter.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

HUMANA INC NEW (HUM): Free Stock Analysis Report

CIGNA CORP (CI): Free Stock Analysis Report

UNITEDHEALTH GP (UNH): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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.

In This Story

CI HUM UNH

Other Topics

Earnings Stocks