On Dec 1, we uploaded our updated research report on the health insurer Aetna Inc. AET.
Aetna is due to acquire another major player in the industry – Humana Inc. HUM. The transaction, slated to close by the second half of 2016, has been approved by the shareholders of both companies. The combination of the two majors should be highly synergistic, as the combined entity will command the position of the second-largest managed care company in the U.S. Specifically, the acquisition will substantially accelerate Aetna’s ability to grow in Medicare Advantage. The combined company is expected to bring in at least $11 of operating EPS in 2018.
Aetna also continues to expand its geographic footprint and will offer products in 745 counties in 2016.
Aetna is also doing well with its Accountable Care Organization (ACO) strategy. It currently has over 200 ACO deals in its pipeline that could serve 60% of the U.S. population.
Like its peer UnitedHealth Group Inc. UNH which cited problems on its individual exchange business, Aetna also disclosed facing similar challenges. Aetna said that it will now participate on individual exchanges in 15 states in 2016 compared with 17 in 2015. The company also reported a decline of nearly 100,000 members on Affordable Care Act compliant individual plans it sold on exchanges. Nevertheless, the company sees long-term market potential in public exchanges.
During the most recently reported third quarter, the company posted earnings of $1.90 per share beating the Zacks Consensus Estimate of $1.78. Earnings were also up 6% year over year. Following strong earnings, the company raised its full-year 2015 operating EPS guidance to a range of $7.45 to $7.55. This was the fourth time that the company increased its 2015 operating EPS projection and the seventh quarter in a row of the projected earnings being pulled up. At the midpoint of the updated EPS range, Aetna would achieve 12% year-over-year operating EPS growth.
Aetna carries a Zacks Rank #3 (Hold). A better-ranked stock is Centene Corp. CNC with a Zacks Rank #2 (Buy).
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