AET Aetna Inc. (delisted)

U.S. health insurer Aetna Inc.’s (AET) fourth quarter 2011 earnings of 97 cents per share, came in line with the Zacks Consensus Estimate. Earnings were, however, up 54% year over year. The company primarily benefited from low medical utilization and a decline in operating expense.

Aetna’s total revenue for the reported quarter came in at $8.54 billion compared with $8.51 billion in the prior-year quarter.

Operating Expenses were $1.83 billion down 3.0% year over year, while the operating expense ratio was 21.5% compared with 21.2% for the fourth quarter of 2010.

Full-year operating earnings came in at $5.17 per share, two cents ahead of the Zacks Consensus Estimate of $5.15 per share.

 Segment Performance

Aetna’s Health Care segment recorded revenues of $7.95 billion, up 1% year over year. Total premium increased 0.5% year over year to $6.9 billion, primarily due to an increase in Medicaid premium partly offset by a decline in Commercial ands Medicare premium.

Total medical membership increased by 229,000 sequentially to 18.5 million, primarily from the acquisition of Genworth Financial's Medicare Supplement business. Aetna is the third largest commercial health insurer based on both enrollment and revenue, trailing WellPoint Inc. (WLP) and UnitedHealth Group Inc. (UNH).

The company’s Group Insurance revenues dropped 2.8% year over year to $488.3 million. However, the segment’s operating earnings increased 35.6% year over year to $27.8 million.

At Large Case Pensions, revenues declined 24.6% year over year to $104.4 million, while operating earnings declined 32.8% to $4.3 million.

2012 Guidance Reaffirmed

Aetna reiterated its 2012 earnings guidance of $5.00 per share. It expects to members from its commercial administrative services contracts to lower by 0.5 million in first quarter of 2012. Aetna believes large corporate customers might choose plans with fixed costs due to soft economic conditions. Aetna also estimates medical membership fall to 17.9 million at first quarter 2012 end. However, the company expects the medical membership to grow over the next nine month in 2012.

Our Take

Overall, Aetna to performed well in 2011, beating earnings estimates every quarter, on the back of low medical utilization, pricing discipline, medical cost management strategies and cost controls.  The year saw the company making strategic investments in acquisitions and technologies. These efforts were made with an intention to extend Aetna's core health business and also to capitalize on exciting new consumer and provider opportunities emerging in the marketplace.

Aetna's strong operating results and significant capital generation will allow it to continue investing for the future. 

We expect the company to continue performing well in 2012. We expect Aetna to continue to benefit from gains in the Medicaid and Medicare segments, fast growing health services segment and a strong balance sheet.

 
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