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Aetna (AET) Tops Q2 Earnings, Revenues, Raises 2017 Guidance

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Health insurer Aetna Inc.’s (AET - Free Report) second-quarter 2017 earnings of $3.42 per share surpassed the Zacks Consensus Estimate of $2.34 by 46% and also grew 55% year over year. Aetna’s bottom line displayed improvement due to higher net income as well as lower transaction and integration-related costs.

Operational Update

Total revenue of $15.5 billion surpassed the Zacks Consensus Estimate of $15.30 billion by approximately 1.3%. Revenues, however, declined 2.5% year over year due to lower premiums in Aetna's Health Care segment.

Adjusted expense ratioimproved 60 basis points (bps) to 16.5% from the prior-year quarter. This was primarily due to the temporary suspension of the HIF in 2017 and the execution of Aetna's expense management initiatives, partially offset by targeted investment spending on its growth strategies.

Total expense ratioimproved 110 bps from the year-ago quarter to 16.4% in the second quarter, primarily due to lower transaction and integration-related costs.

Second-quarter after-tax net income margin was 7.7 %, up 270 bps year over year.  Adjusted pre-tax marginwas 11.7%, up 280 bps from the prior-year quarter. The upside was primarily driven by strong performance in Aetna's Health Care segment, partially offset by the negative impact of the temporary suspension of the HIF in 2017

Medical membership totaled 22.1 million on Jun 30, 2017, down 1.6% year over year.

Segmental Performance Update

Health Care segment

Aetna’s Health Care segment recorded both total revenue and adjusted revenues of $14.8 billion, down 2.6% year over year. The downside primarily stemmed from lower membership in Aetna's ACA compliant individual and small group products and temporary suspension of the HIF in 2017. This was somewhat offset by higher premium yields in the company’s Commercial and Government businesses and membership growth in its Medicare products.

Pre-tax adjusted earnings were $1.8 billion, up 38.5% year over year primarily due to continued strong performance across its core Health Care businesses. The increase also reflects Aetna's updated estimates of risk adjustment payables for the prior year for individual and small group ACA compliant products.

Group Insurance

Total revenue of $642 million declined 0.8% from the prior-year quarter. Adjusted revenuesof $627 million dropped 0.5% from the last-year quarter.

Pre-tax adjusted earningswere $42, down 26.3% from second-quarter 2016 due to lower revenues.

Large Case Pensions

Total revenue of $81 million dropped 1.2% from second-quarter 2016. Adjusted revenuesremained flat at $78 million year over year.

Pre-tax adjusted earningsalso remained flat at $3 million year over year.

Aetna Inc. Price, Consensus and EPS Surprise

Financial Position

Total assets were $56.7 billion as of Jun 30, 2016, down 18% from the prior-year quarter.

Total debt-to-consolidated capitalization ratiowas 37.3% as of Jun 30, 2017, down 1630 bps from 53.6% at year-end 2016. This reflects the repayment of approximately $11.6 billion aggregate principal amount of Aetna's senior notes during 2017.

Guidance

The company expects 2017 operating earnings to be in the range of $9.45–$9.55, up from the previously guided range of $8.80 to $9.00.

Zacks Rank & Performance of Other Insurers

Aetna currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other firms in the medical sector that have reported second-quarter earnings so far, the bottom lines of Anthem Inc. (ANTM - Free Report) , Humana Inc. (HUM - Free Report) and UnitedHealth Group Inc. (UNH - Free Report) beat their respective Zacks Consensus Estimate.

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