A.M. Best Rates Aetna Securities - Analyst Blog
December 20 2011 - 1:27PM
Zacks
Last week, rating agency A.M. Best Co. assigned ratings to
Aetna’s (AET) securities that
were recently registered through the universal shelf registration
process. The rating agency assigned a “bbb+” rating on the
company’s senior unsecured debt, “bbb” on subordinated debt and
“bbb-” on preferred stock with a stable outlook.
Shelf registration is a process authorized by the U.S.
Securities and Exchange Commission (“SEC”), which allows a single
registration document from a company for the issuance of multiple
securities.
The proceeds from the securities’ issue are expected to be used
for working capital, debt repayment, business development as well
as other corporate purposes.
A.M. Best acknowledges Aetna’s strong operational and financial
performance over the past years. Its broad product portfolio, with
a range of traditional and consumer-directed health insurance
products and related services, has helped it to establish the brand
name.
Aetna’s position, in terms of its capital investments, is also
viewed favorably by the rating agency. It boasts a strong balance
sheet with sufficient financial flexibility and a debt-to-total
capitalization ratio of 30%. Consistent positive cash flows, which
are put to use for acquisitions, share repurchases or other
strategic investments, generate value for both the business and the
shareholders.
However, some of the factors that offset the positives include –
negative pressure on margins and decline in enrollment numbers.
A. M. Best did not change the previously assigned ratings of
Aetna and its subsidiaries. In June 2011, the rating agency had
assigned “bbb+” debt ratings to the company’s $500 million 4.125%
senior unsecured notes, due in 2021. The rating agency had also
affirmed the financial strength ratings (“FSR”) of “A” and the
issuer credit rating (“ICR”) of “a” for the company.
The financial strength and credit ratings of a company are
important metrics to determine its ability to fulfill policyholder
obligations. These also affect public confidence in the company’s
potential and its competitiveness. Securing an investment grade
debt rating with a stable outlook reflects optimism about Aetna’s
future performance.
We also saw a similar rating action by A.M. Best last week when
it assigned a “bbb+” rating to WellPoint Inc.’s
(WLP) senior unsecured debt, “bbb” to subordinated debt and “bbb-”
to preferred stock with a stable outlook.
Aetna currently retains a Zacks #1 Rank, which translates into a
short-term Strong Buy rating. Considering the fundamentals, we are
also maintaining our long-term Outperform recommendation on the
shares.
AETNA INC-NEW (AET): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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