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Analyst Blog

On Jun 27, 2013, Aetna Inc. (AET - Analyst Report) hit a 52-week high of $63.82. The momentum was driven by continued strong execution by the company. It has been reporting solid earnings for the past several quarters and is expected to do so given a huge amount of investments and acquisitions.

Aetna’s execution over the last few years has been excellent. Performance has been strong across the board fueled by both acquisition-driven and organic growth.Aetna has made huge investments in technology upgrades and acquisitions. 

The company has positioned itself strongly in the Medicaid market by acquiring Coventry. The acquisition is expected to enhance the company’s footprint in the Medicaid market, giving it more credibility. It also positions the company better for Medicaid RFP, expansion and dual growth opportunities.

It has also made a number of acquisitions in its Commercial business over the past 2-3 years.

Aetna is poised to benefit from growth in Medicaid and Medicare network segments, a fast-growing health services segment and an expanding provider network. It is also aggressively forming Accountable Care Organizations to generate incremental revenues.

We also have a growing optimism for international growth opportunities at Aetna. The company is aggressively entering foreign markets. It is targeting Asian markets like India and China both of which present huge potential growth.

Moreover, a strong balance sheet with an efficient capital management program provides inherent strength. The company is also witnessing an increase in membership.

Additionally, valuation for Aetnalooks attractive. While the shares are trading at a discount to the peer group average on a forward price-to-earnings basis and at a modest premium on a price-to-book basis, return on equity is 17.4% higher than the peer group average. Moreover, the 1-year return from the stock was 52.5%, much above the S&P’s return of 20.3%.

Aetna carries a Zacks Rank # 1 (Strong Buy)..Other life insurers like Molina Healthcare, Inc. (MOH - Analyst Report) with a Zacks Rank #1 and Centene Corp. (CNC - Snapshot Report) and CIGNA Corp. (CI - Analyst Report) with Zacks Rank #2 (Buy) are worth considering.

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