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Analyst Blog

On May 27, shares of Aetna Inc. (AET - Analyst Report) hit a new 52-week high of $77.68 per share. The momentum in the share price was propelled by the company’s solid first quarter earnings following which it raised its 2014 earnings guidance.  

Aetna delivered positive earnings surprise in two of last four quarters with an average beat of 8.4%. The stock has gained 6.1% since the earnings release on April 24, and has surged 14.5% year to date, reflecting a much higher movement than 4.4% increase in S&P 500 stock level. Aetna has breezed past its ilk, including big players like UnitedHealth Group Inc. (UNH - Analyst Report) and Cigna Corp. (CI - Analyst Report) that have has risen 6.5% and 3.2% respectively, year to date.

The solid performance by Aetna was largely fueled by higher underwriting margins in the Health Care business and accretion from the Coventry acquisition.

Aetna is one of the biggest health insurances in the U.S. and has made considerable investments in products and technology, with an intention to extend its core health business and capitalize on exciting new consumer and provider opportunities emerging in the marketplace.

It is one of the players that is proactively seeking ways to counter the numerous challenges thrown by the Health Care Reform Act which has brought about structural changes in the industry.

Aetna’s Coventry acquisition is turning out more accretive than earlier estimated, and is contributing to overall earnings. Aetna is also making inroads into international markets which offer huge growth opportunities.

After a successful initial experience with the newly established Obamacare online exchanges, Aetna now plans to expand its presence to more states.

The company is also building on its Accountable Care Organization strategy to generate incremental revenues.

Aetna’s strong balance sheet with consistent cash flow generation and low leverage is yet another positive.

Aetna carries a Zacks Rank #3 (Hold). However, Select Medical Holdings Corporation (SEM - Snapshot Report) with a more favorable Zacks Rank #1 (Strong Buy) is worth considering.

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