Health insurer Aetna Inc. (AET) reported fourth-quarter 2014 earnings of $1.22 per share, in line with the Zacks Consensus Estimate. Earnings, however, declined 16% year over year due to higher investment spending on growth initiatives. Higher underwriting margins in Aetna's Health Care businesses managed to somewhat limit the downside.
Behind the Headlines
Aetna’s operating revenues for the reported quarter grew 12% year over year to $14.7 billion led by an increase in membership in Health Care business and pricing effects. Reported revenues also surpassed the Zacks Consensus Estimate $14.6 billion.
The operating expense ratio increased 170 basis points year over year to 19.7%, primarily due to payment of fees under the health care reform and increased investment expenditure on Government business growth.
Pre-tax operating margin contracted 120 basis points year over year to 5.5%.
Aetna exited 2014 with Medical membership of 23.5 million, representing a year-over-year increase of 6%. Growth in Commercial Insured and Government products led to the increase in enrollment.
Full-Year Review
Operating earnings of a record $6.70 per share managed to surpass the Zacks Consensus Estimate by a penny. It improved 7% year over year on the inclusion of Coventry Health Care and better underwriting margins at Aetna's Health Care and Group Insurance segments. However, higher investment spending to support growth initiatives limited the upside.
Operating revenues of a record $57.9 billion improved 23% over 2013 and outperformed the Zacks Consensus Estimate of $57.6 billion.
Segmental Performance
Aetna’s Health Care segment recorded revenues of $14.1 billion, up 13.7% year over year. Operating earnings declined 16.3% from the year-ago quarter to $447.6 million due to higher investment spend to support Aetna's growth initiatives.
Aetna’s Group Insurance revenues climbed 4% year over year to $615.6 million. Operating earnings dropped 55% year over year to $21.3 million due to lower net investment income.
At Large Case Pensions, revenues decreased 26.5% year over year to $87.7 million mainly due to the termination of an existing contract with a customer that resulted in the discontinuation of certain services. Operating earnings increased 12% year over year to $5.6 million.
Capital Deployment
Aetna returned more than $1.5 billion to shareholders through share repurchases and an increased dividend in 2014.
Aetna spent $243 million to buy back 2.9 million shares in the quarter, taking the full-year tally to 15.9 million shares repurchased for $1.2 billion.
2015 Guidance Raised
Aetna now expects 2015 earnings of at least $7.00 per share, up from at least $6.90 per share guided earlier.
Our Take
On the strength of portfolio diversification, continued progress in integrating the Coventry business, pricing discipline and solid execution, the company remains well poised for the long run. Given its solid performance, the company raised its earnings expectation.
We also anticipate that the company will gain in terms of membership enrollment in its Commercial and Government businesses. Strong capital management will also drive the bottom line.
Aetna carries a Zacks Rank #3 (Hold).
Peer Performance
Bottom lines at UnitedHealth Group Inc. (UNH) and Anthem, Inc. (ANTM) have outperformed their respective Zacks Consensus Estimate in the fourth quarter. A better-ranked stock, Humana Inc. (HUM) with a Zacks Rank #2 (Buy) is scheduled to come up with its results on Feb 4.
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
Be the first to comment