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Aetna (AET) Down 1.1% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Aetna Inc. . Shares have lost about 1.1% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is AET due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Aetna Q1 Earnings Beat Estimates, Enrollment Declines

Health insurer Aetna Inc.’s first-quarter 2018 earnings of $3.19 per share beat the Zacks Consensus Estimate of $2.97 by 7.4%. Moreover, the bottom line improved 17.7% from the prior-year quarter.

The year-over-year improvement in earnings was attributable to strong performance across the company’s core businesses. Also, a favorable prior-year reserve development more than offset higher-than-expected flu-related medical costs.

Soft Revenues

Aetna recorded revenues of $15.22 billion, which declined 1.7% from the year-ago figure of $15.49 billion. This downside was primarily driven by the company’s divested domestic group life insurance, group disability insurance and absence management businesses during fourth-quarter 2017. However, the improvement was partially offset by higher adjusted revenues in the Health Care segment.

Total expense ratio of 17.9% increased 190 basis points year over year.

Pre-tax margin of 10.1% expanded slightly by 10 basis points year over year.

The company’s total enrollment decreased to 47.9 million from 50.7 million in the year-ago quarter.

Segmental Performance Update

Starting from first-quarter 2018, Aetna realigned its business segments in order to be consistent with the changes brought in its management structure and internal management reporting. On the basis of this realignment, the company will now conduct its operations in the Health Care segment.
The company will provide the remaining portion of its financial results in the Corporate/Other category.

Health Care

Adjusted revenues were $15.1 billion, up 2% year over year. This upside was attributable to higher membership in the company’s Medicare products, a positive impact of the reinstatement of HIF in 2018 along with taking on the new accounting guidance with regard to revenue recognition for the quarter under review. However, lower membership in Aetna's ACA compliant individual and small group products as well as the company’s Medicaid products, partially offset this upside.

Pre-tax adjusted earnings of $1.5 million remained flat year over year on higher membership in Medicare products and previously announced exit from individual Commercial products. However, lower membership in Aetna’s Commercial and Medicaid products substantially offset the upside.

Total healthcare medical benefit ratio (MBR) fell 210 basis points year over year to 80.4% due to higher medical costs, attributable to a more severe flu season during the reported quarter compared with the prior-year period.

Financial Position

Total assets were $59.2 billion as of Mar 31, 2018, up 7.3% year over year.

Long-term debt decreased 4.6% year over year to $7.8 billion.

Debt-to-capitalization ratio was 35.8% as of Mar 31, 2018 compared with 37% as of Dec 31, 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to seven lower.

Aetna Inc. Price and Consensus

 

Aetna Inc. Price and Consensus | Aetna Inc. Quote

VGM Scores

At this time, AET has a great Growth Score of A, though it is lagging a lot on the momentum front with a C. The stock was also allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, AET has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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