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We issued an updated research report on the U.S. health insurer Aetna Inc. (AET - Analyst Report) on Jun 19. The insurer churned out first-quarter earnings of $1.98 per share, which breezed past the Zacks Consensus Estimate of $1.56. Earnings also grew 27% year over year.  Better-than-expected earnings came on the back of higher underwriting margins in the Health Care business and accretion from the Coventry acquisition.

Aetna is one of the nation’s leading diversified health care benefits’ companies. Regardless of facing significant business challenges and uncertainties in 2014, many of which are occurring for the first time in the health insurance industry, the company did not fail to post strong earnings.

Aetna has taken a mix of measures both organic as well as inorganic to grow its business. The acquisition of Coventry has significantly improved its market position in both the commercial and government market.

Moreover, Aetna is also actively working on increasing its accountable care organizations, to add revenue streams.

The health insurer has been successfully increasing its membership. The first quarter of 2014 marked its eighth sequential quarter of medical membership growth.

Aetna is well poised to grow its public exchange business. At the end of the first quarter, Aetna had 230,000 paid public exchange members. Based on the company’s experience to date, it now projects to end this year with approximately 450,000 paid public exchange members.

Other factors such as expanding international business and a strong capital position make it a favored stock among investors.

Nevertheless, hindrance to premium rate increases, medicare rate pressure and increasing medical cost are some long-term threats to the company.

Other Stocks

Aetna carries a Zacks Rank # 3 (Hold). Other players from the same industry such as Select Medical Holdings Corporation (SEM - Snapshot Report) and Triple-S Management Corporation (GTS - Snapshot Report) and WellCare Health Plans, Inc. (WCG - Snapshot Report) are also worth considering. All these stocks sport a Zacks Rank #1 (Strong Buy).

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