Aetna Sheds Light on FY11 Earnings - Analyst Blog
September 14 2011 - 10:41AM
Zacks
During its recently held conference call, health insurer
Aetna Inc. (AET) announced that
it would be tweaking its fiscal 2011 earnings per share (EPS)
guidance upward from the current range of $4.60 to $4.70. The
announcement was enough to send the company’s share up by 5.44% in
yesterday’s trading.
Management’s decision to raise its 2011 EPS guidance is based on
continued lower utilization witnessed in the months of July and
August. Also, year till date results were helped by lower medical
costs as more and more people are shying away from physicians and
hospital visits due to higher co-payments and deductibles.
Lower medical use has proven to be a tailwind that would
translate into higher earnings for the health insurance companies.
This is reinforced by the fact that Aetna’s peers,
UnitedHealth Group Inc. (UNH),
CIGNA Corp. (CI) and
WellPoint Inc. (WLP), also saw a
surge in their respective share prices following Aetna’s
announcement.
Medical utilization, an important metric for health insurer,
which measures the number of health services used by enrollees,
remained subdued throughout 2010, and the same trend was seen year
till date in 2011. Analysts and insurance companies hold a mixed
opinion about medical utilization. While the insurance companies
predict utilization levels to revert back to normal levels at the
beginning of next year, some analyst believe that the trend is here
to stay, with less people flocking to hospital as they will have to
pay more in the form of higher co-payments and higher
deductibles.
Aetna will provide the estimate figure with more details during
its third quarter conference calls. The company also disclosed that
it has bought back $350 million of shares during the ongoing third
quarter. The earnings will, however, be adversely affected by low
investment income amid the continuing low interest rate
environment.
On member ship growth, the third largest insurer, Aetna said
that it expects growth in its Medicare and large-group commercial
risk business, which will be partially offset by membership
declines in the company’s administrative services only
contracts.
Overall, we believe Aetna is in a great shape to deliver
earnings outperformance. A solid balance sheet, in-target range of
debt and adequate liquidity are other positives for the company.
Its deployment of capital for numerous acquisitions will gear it
fully for the changed environment after the full implementation of
the Health Care law.
AETNA INC-NEW (AET): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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