An underperforming public exchange business and regulatory attacks on the proposed acquisition of Humana are lately hassling health insurer Aetna Inc. .
Earlier this week, Aetna voiced its concerns over the public exchange business and is mulling over exiting from this business in 11 of the 15 states in which it is currently present. It will reduce its individual public exchange participation to 242 counties from 778 for the 2017 plan year.
This development comes after Aetna suffered a pretax loss of $200 million in the second quarter and total pretax loss of more than $430 million since Jan 2014 in its individual products sold via public exchanges.
Earlier, Aetna had expected to be at breakeven profitability on this business in 2016, but is now reevaluating it, after witnessing huge claims from sicker-than-expected customers enrolled on public exchanges. The number of healthy and young individuals who enrolled on these exchanges are far less that customers who are aged and had pre-existing diseases who lacked coverage earlier. This adverse mix of customer population led to increased claims leading to losses for the insurer. Aetna is now expecting losses (pre-tax) north of $300 million on policies sold on public exchanges for 2016.
Aetna is being troubled by regulators, with the Department of Justice suing it for its proposed merger with Humana Inc. (HUM - Free Report) . The merger, which would have lifted the rank of Aetna as the major Medicare provider, a market coveted by all the other players in the industry, is now shrouded in uncertainty. Aetna is, however, determined to overcome the challenge and is divesting Medicare Advantage plans that cover 290,000 people in 21 states to Molina Healthcare, Inc. (MOH) to gain approval for the deal.
Aetna’s bottom line will also suffer from the suspension of share buyback to lower debt levels to below 40% within 24 months. The company’s debt to consolidated capitalization ratio shot up to 53.8% as of Jun 30, 2016 from 32.6% on Dec 31, 2015, due to the issuance of $13 billion of senior notes to partially fund the acquisition of Humana.
Aetna is also witnessing hurdles in growing its membership. The company is experiencing continued membership pressure in the middle market and small group businesses due to its previous pricing actions to improve margins. The company now expects losses in its commercial membership to more than offset growth in government membership over the remainder of 2016. The year 2015 saw medical membership decline by 61,000. Also, the company ended the second quarter with 23 million medical members, essentially flat with the first quarter. The company now projects 2016 membership at around 23 million, down from 23.49 million in 2015, as growth in Government membership over the remainder of the year will be largely offset by declines in Commercial Insured membership, including continued attrition within its individual products.
While Aetna, carrying a Zacks Rank #3 (Hold), is trapped in a web of woes, other players worth considering in this space are Humana, United Health Group Inc. (UNH - Free Report) and WellCare Health Plans, Inc. .
Humana with a Zacks Rank # 1 (Strong Buy) has strong fundamentals. Its strong-performing individual Medicare Advantage and other government-sponsored plans remain the highlights. Also, its Healthcare Services business is well poised and will contribute to its growth. Last month, Humana won a contract from the U.S. Department of Defense to administer TRICARE benefits to about 6 million people, which nearly doubles the number of military beneficiaries served by Humana.
However, challenges in its individual commercial medical business are nagging. Also, its merger with Aetna remains uncertain. Nevertheless, the company has reaffirmed its 2016 financial guidance. The company expects earnings of at least $8.56 in 2016 compared with $8.32 predicted before. Humana has also witnessed a 4.9% increase in earnings estimate to $9.28 per share for 2016, over the past 30 days, with all the 10 analysts covering the stock raising their estimates. Its long-term EPS growth rate is 13.5%.
UnitedHealth with a Zacks Rank #2 (Buy) is the most diversified health maintenance organization. Though the company also remains troubled by its public exchange business and has exited most of the markets, it remains attractive given the strength in its other business segments. Instead of its heavily regulated Health Benefits business, the company is focusing on investing and growing its health services business branded as Optum.
To this end, the company acquired Catamaran last year. The acquisition has been evidently fruitful thanks to the revenue accretion from it. Optum is becoming an increasingly valuable business and is expected to contribute about 42% of UnitedHealth Group’s consolidated operating earnings outlook this year.
Also, the company has also grown membership over the past five years by nearly 13.5 million or 40% well diversified across commercial, government programs and international offerings. The company’s membership is further set to grow in Medicare Advantage, Medicaid as well as commercial plans. UnitedHealth also has a strong balance sheet and generates handsome cash flows which allow it to increase dividend payments and make regular share buybacks.
UnitedHealth also witnessed a 0.4% increase in earnings estimate to $7.91 per share for 2016, over the past 30 days, with eight out of the 13 analysts covering the stock raising their individual estimates. Its long-term EPS growth rate is 13.4%.
UNITEDHEALTH GP Price and Consensus
WellCare Health Plans with a Zacks Rank #2 remains well poised to grow in the Medicaid, Medicare and Medicare Part D business. During the second quarter, it closed the Advicare transaction, gaining greater Medicaid presence in South Carolina. The company taking both organic and inorganic steps to fuel its growth and is trying to double its revenues between 2017 and 2021.
The company also increased its 2016 adjusted earnings per diluted share guidance to a range of $4.95 to $5.05 from its previous guidance range of $4.55 to $4.70.
WellCare Health also witnessed a 7.5% increase in earnings estimate to $5.01 per share for 2016, over the past 30 days, with each of the nine analysts covering the stock raising their individual estimates. Its long-term EPS growth rate is 17.7%.
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An underperforming public exchange business and regulatory attacks on the proposed acquisition of Humana are lately hassling health insurer Aetna Inc. .
Earlier this week, Aetna voiced its concerns over the public exchange business and is mulling over exiting from this business in 11 of the 15 states in which it is currently present. It will reduce its individual public exchange participation to 242 counties from 778 for the 2017 plan year.
This development comes after Aetna suffered a pretax loss of $200 million in the second quarter and total pretax loss of more than $430 million since Jan 2014 in its individual products sold via public exchanges.
Earlier, Aetna had expected to be at breakeven profitability on this business in 2016, but is now reevaluating it, after witnessing huge claims from sicker-than-expected customers enrolled on public exchanges. The number of healthy and young individuals who enrolled on these exchanges are far less that customers who are aged and had pre-existing diseases who lacked coverage earlier. This adverse mix of customer population led to increased claims leading to losses for the insurer. Aetna is now expecting losses (pre-tax) north of $300 million on policies sold on public exchanges for 2016.
Aetna is being troubled by regulators, with the Department of Justice suing it for its proposed merger with Humana Inc. (HUM - Free Report) . The merger, which would have lifted the rank of Aetna as the major Medicare provider, a market coveted by all the other players in the industry, is now shrouded in uncertainty. Aetna is, however, determined to overcome the challenge and is divesting Medicare Advantage plans that cover 290,000 people in 21 states to Molina Healthcare, Inc. (MOH) to gain approval for the deal.
Aetna’s bottom line will also suffer from the suspension of share buyback to lower debt levels to below 40% within 24 months. The company’s debt to consolidated capitalization ratio shot up to 53.8% as of Jun 30, 2016 from 32.6% on Dec 31, 2015, due to the issuance of $13 billion of senior notes to partially fund the acquisition of Humana.
Aetna is also witnessing hurdles in growing its membership. The company is experiencing continued membership pressure in the middle market and small group businesses due to its previous pricing actions to improve margins. The company now expects losses in its commercial membership to more than offset growth in government membership over the remainder of 2016. The year 2015 saw medical membership decline by 61,000. Also, the company ended the second quarter with 23 million medical members, essentially flat with the first quarter. The company now projects 2016 membership at around 23 million, down from 23.49 million in 2015, as growth in Government membership over the remainder of the year will be largely offset by declines in Commercial Insured membership, including continued attrition within its individual products.
While Aetna, carrying a Zacks Rank #3 (Hold), is trapped in a web of woes, other players worth considering in this space are Humana, United Health Group Inc. (UNH - Free Report) and WellCare Health Plans, Inc. .
Humana with a Zacks Rank # 1 (Strong Buy) has strong fundamentals. Its strong-performing individual Medicare Advantage and other government-sponsored plans remain the highlights. Also, its Healthcare Services business is well poised and will contribute to its growth. Last month, Humana won a contract from the U.S. Department of Defense to administer TRICARE benefits to about 6 million people, which nearly doubles the number of military beneficiaries served by Humana.
However, challenges in its individual commercial medical business are nagging. Also, its merger with Aetna remains uncertain. Nevertheless, the company has reaffirmed its 2016 financial guidance. The company expects earnings of at least $8.56 in 2016 compared with $8.32 predicted before. Humana has also witnessed a 4.9% increase in earnings estimate to $9.28 per share for 2016, over the past 30 days, with all the 10 analysts covering the stock raising their estimates. Its long-term EPS growth rate is 13.5%.
UnitedHealth with a Zacks Rank #2 (Buy) is the most diversified health maintenance organization. Though the company also remains troubled by its public exchange business and has exited most of the markets, it remains attractive given the strength in its other business segments. Instead of its heavily regulated Health Benefits business, the company is focusing on investing and growing its health services business branded as Optum.
To this end, the company acquired Catamaran last year. The acquisition has been evidently fruitful thanks to the revenue accretion from it. Optum is becoming an increasingly valuable business and is expected to contribute about 42% of UnitedHealth Group’s consolidated operating earnings outlook this year.
Also, the company has also grown membership over the past five years by nearly 13.5 million or 40% well diversified across commercial, government programs and international offerings. The company’s membership is further set to grow in Medicare Advantage, Medicaid as well as commercial plans. UnitedHealth also has a strong balance sheet and generates handsome cash flows which allow it to increase dividend payments and make regular share buybacks.
UnitedHealth also witnessed a 0.4% increase in earnings estimate to $7.91 per share for 2016, over the past 30 days, with eight out of the 13 analysts covering the stock raising their individual estimates. Its long-term EPS growth rate is 13.4%.
UNITEDHEALTH GP Price and Consensus
WellCare Health Plans with a Zacks Rank #2 remains well poised to grow in the Medicaid, Medicare and Medicare Part D business. During the second quarter, it closed the Advicare transaction, gaining greater Medicaid presence in South Carolina. The company taking both organic and inorganic steps to fuel its growth and is trying to double its revenues between 2017 and 2021.
The company also increased its 2016 adjusted earnings per diluted share guidance to a range of $4.95 to $5.05 from its previous guidance range of $4.55 to $4.70.
WellCare Health also witnessed a 7.5% increase in earnings estimate to $5.01 per share for 2016, over the past 30 days, with each of the nine analysts covering the stock raising their individual estimates. Its long-term EPS growth rate is 17.7%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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