We are reiterating our Outperform recommendation on the shares of Aetna Inc.
(AET - Analyst Report
) following better-than-expected second quarter earnings results. Aetna second quarter earnings threw a 9.4% positive earnings surprise. Over the past four quarters this Zacks Rank #2 (Buy) health insurer has delivered an average positive surprise of 7.9%.
On Jul 30, Aetna reported second-quarter 2013 earnings of $1.52 per share, surpassing the Zacks Consensus Estimate by 13 cents per share. Earnings also increased 16% year over year. The earnings upside came on the back of earnings accretion from Coventry acquisition, strong underlying performance in Commercial business and membership growth.
Aetna has also been witnessing rising earnings estimates. Over the last 7 days, 6 out of 14 estimates moved north, pushing the Zacks Consensus Estimate for 2013 by 0.7% to $5.88. The same for 2014 rose 0.3% to $6.37 as 4 of 14 estimates were raised over the same time frame. The expected long term earnings growth is 11.9%.
Aetna’s business execution over the last few years has been excellent. While performance has been strong across the board a stand-out area is its organic and acquisition-fueled growth.
Aetna has made huge investment in technology upgradation.
Aetna concluded the acquisition of Coventry in May. The acquisition enhances the company’s Medicaid footprint, gives it more credibility, and better positions the company for the enormous 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. At the same time, the company is witnessing an increase in membership
Aetna is aggressively forming Accountable Care Organizations to generate incremental revenues. We also have a growing optimism for international growth opportunities at Aetna.
A strong balance sheet with an efficient capital management program provides inherent strength.
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