On May 29, we issued an updated research report on the U.S. health insurer Aetna Inc. AET.
Aetna is among the top five health insurers in the U.S., with the first position duly held by UnitedHealth Group Inc. UNH (as per market share). The company exited first-quarter 2015 on a strong note reflecting higher premium and increase in enrollment.
Aetna has taken several measures – both organic and inorganic – to expand its business. These efforts are projected to yield revenues of at least $62 billion in 2015, up from $57.9 billion reported in 2014. The company expects to reach $100 billion in operating revenues by the end of the decade. Growth will primarily come on retail marketplaces, public exchanges, medicare advantage, dual eligibles and Medicaid.
Meanwhile, the insurer is actively working on its ACO strategy to manage medical cost.
The company also sees attractive business opportunity from private exchanges and expects $7.5 billion of premium from this line by 2018.
Furthermore, Aetna is well poised to grow its public exchange business. The company had 600,000 paid public exchange members in 2014. The company projects solid growth in its public exchange business in 2015.
Aetna expects enrollment to exceed 23.5 million lives in 2015, higher than the prior guidance of 23.4 million. This increase will be driven by projected higher membership in Commercial Risk and Medicare, partly offset by a decline in Large Group Commercial ASO and Medicaid.
Other factors such as an expanding international business and a strong capital position make it a favored stock among investors. Over the last 4 years (2010-2014), Aetna’s total shareholders' return has exceeded 2.4x the return of the S&P 500.
Nevertheless, high charges related to the Health Reform Regulation, the Supreme Court ruling for the King v. Burwell case and increasing medical costs are some of the headwinds facing the company over the near term.
Aetna carries a Zacks Rank #2 (Buy). Some other stocks worth considering are Centene Corp. CNC and Anthem, Inc. ANTM. Both the stocks hold the same Zacks Rank as Aetna.
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