Aetna Hits 52-Week High on Strong Guidance, Acquisition

On Jan 8, 2014, health insurer Aetna Inc. (AET) surged to a 52-week high of $92.53. The rally in the stock was propelled by a strong earnings guidance for 2014 and 2015 provided and the acquisition of bswift. About 2.8 million shares exchanged hands in the last trading session.

Over the past year, the stock is up 35.2%. This is significantly higher than the S&P 500’s increase of 12.2% over the same time frame.

Growth Drivers

Aetna gave strong guidance for 2014 and 2015, enhancing investors’ confidence in its performance within a sector mired by huge changes enforced by the government. For 2014, the insurer expects revenues of $57–$58 billion, the midpoint of which is 21.8% higher than the actual revenue of $47.2 billion reported in 2013. The company expects to reach $100 billion in revenues by 2020.

Operating earnings for 2014 is expected at approximately $2.4 billion, up from $2.3 billion reported in 2013. On a per share basis, earnings are expected in the range of $6.60–$6.70.

As far as enrollment is concerned, the company expects 2014 medical membership of approximately 23.4 million, up from 22.2 million in 2013.

For 2015, the company expects to generate revenues of at least $62 billion, and earnings per share of at least $6.90. The adverse impact of the Affordable Care Act will subdue to some extent and not hamper earnings growth.

Recently, the company announced the completion of its acquisition of bswift, a private health insurance exchange company. The acquisition will help the company to expand its presence in the private exchange market which it views as an attractive market opportunity.

Zacks Ranks and Other Stocks

Aetna carries a Zacks Rank #3 (Hold). Better-ranked players include Centene Corp. (CNC), UnitedHealth Group Inc. (UNH) and Anthem Inc. (ANTM). While Centene sports a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy).