Aetna Shares Touch 52-Week High

On Feb 24, shares of Aetna Inc. (AET) hit a new 52-week high of $72.43 per share. The momentum in the share price was driven by a strong fourth-quarter earnings performance at the company despite numerous headwinds faced in connection with the Affordable Care Act. The 1–year return from the stock came in at 50.9%, much ahead of the S&P’s return of 21.9%.

Aetna’s fourth quarter earnings per share (EPS) were $1.34 , up 43% year over year, driven by earnings accretion from the Coventry acquisition as well as higher underwriting margins primarily in the Commercial business, partially offset by lower underwriting margins in the Medicare business. The company delivered positive surprise in 2 of last 4 quarters with an average of 3.8%.

Aetna’s total revenue for the reported quarter rose significantly by 33% year over year to $13.1 billion, led by higher Health Care premiums from the acquisition of Coventry, increased Medicare membership and underlying Commercial Insured premium yield growth. Reported revenues were in line with the Zacks Consensus Estimate.

Aetna ended the year 2013 with nearly 22.2 million medical members, representing its seventh sequential quarter of medical membership growth.

Aetna 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.

Moreover, Aetna’s Coventry acquisition is turning out to be more accretive than estimated, promising a healthy contribution to earnings going ahead. The company is also working toward expanding its high-margin international business.

Subsequently, the stock has witnessed an upward revision in estimates. Over the past 30 days, EPS estimates for first-quarter 2014 moved north by 3.2% to $1.60 as 11 of the 16 analysts pulled up their numbers. For full-year 2014, the same increased 2.6% to $6.40 per share as 6 of the 14 analysts hauled up their estimates.

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

Aetna should benefit from growth in the Medicaid and Medicare divisions – the fast-growing health services segments at the company, and an expanding provider network.

A strong balance sheet with low leverage is yet another positive.

However, Aetna expects to lose money in 2014 from its business in health insurance exchange as the newly signed members mostly belong to older, higher cost population. Other players such as UnitedHealth Group Inc. (UNH), Cigna Corp. (CI) and Humana Inc. (HUM) are also taking a cautious approach toward the health insurance exchanges.

Aetna presently carries a Zacks Rank #2 (Buy).