AET Aetna Inc. (delisted)

The third largest commercial health insurer Aetna Inc. (AET) has posted third quarter 2011 earnings of $1.40 per share, significantly ahead of the Zacks Consensus Estimate of $1.14 as well as the year-ago quarter’s earnings of $1.00 per share.

Declining utilization, strong performance across all the product lines, disciplined pricing and medical cost trends accounted for the earnings upside.

However, including net realized capital gains and other items, net income stood at 490.4 million, down 1.0% year over year.

Thecompany’s total revenue for the reported quarter inched down 1% year over year to $8.5 billion, mainly due to a decline in earned premium.

Operating Expenses were $1.7 billion up 4.9% year over year, while  the operating expense ratio was 20.0% compared with 18.9% for the third quarter of 2010. The increase in the operating expense ratio is driven primarily by the inclusion of acquisitions, the settlement of certain contractual disputes, increased investment spending, including open enrollment initiatives, and lower revenue.

Segmental Performance

Aetna’s Health Care segment recorded revenues of $7.8 billion, unchanged relative to the prior year quarter. Total premium collected dropped 2.0% year over year to $6.8 billion due to a decline in commercial business and Medicare business. Total medical membership declined by 11,000 year over year to 18.23 million.

The company’s Group Insurance revenues dropped 2.5% year over year to $489.5 million. However, thesegment’s operating earnings increased 9.5% year over year to $37.9 million

At Large Case Pensions, revenues hiked 3.8% year over year to $128.1 million, while operating earnings declined 21% to $4.4 million.

Outlook

Followingits better-than-expected results year to date, Aetna has raised its full-year 2011 operating earnings per share guidance for the third time this year to $5.00 from the range of $4.60–$4.70 previously. It also projected 2012 earning of $5.00 per share.

Year till date, Aetna has posted strong earnings helped by of strong performance across all product lines from lower than projected utilization and disciplined execution of our pricing and medical cost management strategies. The company is aggressively growing its Medicare business and the recently announced acquisition of Genworth Medicare Supplement is a step in this direction.

Aetna has also spent approx $1.6 billion through October on acquisitions. Through its acquisition strategy, Aetna is gearing itself up for the changes that the Health Care Act will bring in when its provisions become applicable in 2014.

Aetna competes closely with UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP) both of which reported higher than expected earnings and raised earnings guidance. We expect similar performance from CIGNA Corp. (CI), another competitor which is expected to report earnings on November 3, 2011.  

 
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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