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Is Disappointment in Store for Aetna (AET) in Q4 Earnings?

Aetna Inc.AET is scheduled to report fourth-quarter and full-year 2016 results on Jan 31 before the opening bell.

Last quarter, Aetna beat the Zacks Consensus Estimate by 2.48%. Let's see how things are shaping up for this announcement.

Q4 Flash Back

Aetna's fourth-quarter results will largely reflect its continued strong performance in the Government business (Medicare and Medicaid) and focus on operating costs which will be to some extent offset by losses sustained in its ACA compliant products.

Within Aetna's Government business, the performance of its Medicare business remains robust. Its strong membership growth in Medicare Advantage speaks strongly of its growth strategy. The company's Medicaid business has also performed well so far this year and the trend is expected to continue in the fourth quarter too.

We expect the bottom line to benefit from the company's cost-reduction initiatives.

Nevertheless, ACA compliant-products weighed on the company's results for the first nine months of 2016 and the pain is expected to be felt in the fourth quarter too. We expect to see membership declines in the company's Commercial Insured business, primarily as a result of attrition in its public exchange Individual and Small Group membership.

Also, Aetna's bottom line will likely suffer from the suspension of share buyback as the company utilizes funds to lower debt levels to below 40%.

Management projects earnings in the range of $7.95 to $8.05 per share for full-year 2016. It also expects year-end membership of approximately 23 million, with ACA compliant Small Group and Individual membership attrition projected to be the largest driver of membership movement in the fourth quarter.

With respect to the surprise trend, the company delivered positive surprises in each of the last four quarters, with an average beat of 6.25%.

Share Price Performance

Shares of the company have performed poorly since last July (when its deal with Humana was sued by the Department of Justice), declining 1.92% compared with a gain of 11.81% for the Zacks categorized Medical - Health Maintenance Organization industry. The share price performance is reflective of the pessimism that surrounded the stock over the merger-related uncertainty and was made worse by the final outcome last week which blocked the merger.

Earnings Whispers

Our proven model does not conclusively show that Aetna is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Aetna has an Earning ESP of 0.00%. This is because the Most Accurate estimate stands at a $1.45 per share, in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Aetna Inc. Price, Consensus and EPS Surprise

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

Zacks Rank: Aetna carries a Zacks Rank #4 (Sell) which decreases the predictive power. We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies from the health care sector that you may consider 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. 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 #2 (Buy). The company is expected to report third-quarter earnings results on Feb 13.

CVS Health Corporation CVS has an Earnings ESP of +0.60% and a Zacks Rank #3 (Hold). The company is expected to report fourth-quarter and 2016 earnings results on Feb 9.

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Aetna Inc. (AET): 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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