Aetna Scales 52-Week High as Q3 Results Impress Investors

On Nov 17, 2014, health insurer Aetna Inc. (AET) surged to a 52-week high of $86.27. The rally in the stock was propelled by strong third-quarter earnings. About 2.9 million shares exchanged hands in the last trading session.

Year to date, the stock is up 28.6%, which is higher than the S&P 500’s increase of 11.5% over the same time frame.

Growth Drivers

Aetna's strong third-quarter financial performance is the continuation of its track of solid results and attractive revenue and earnings growth.

Operating earnings of $1.79 per share comfortably beat the Zacks Consensus Estimate of $1.58. Earnings were also up 11% year over year. Aetna’s better-than-expected earnings came on the back of higher underwriting margins in the Health Care and Group Insurance business, partly offset by increased investment expenditure to expand its Government business.

The company’s top line grew 13% 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.

Investors are optimistic about the stock given that Aetna delivered a positive surprise in three out of the last four quarters, with an average beat of 11.1%.

Aetna has successfully appeased investors by showing earnings strength in 2014 despite facing unprecedented challenges relating to the Affordable Care Act.

Intelligent use of capital via share buyback and increase in dividend also make Aetna a favored stock. The positive investor sentiment was fortified by the company’s upbeat guidance which was raised for the third time this year. The $6.65 midpoint of the 2014 earnings guidance of $6.60 to $6.70, represents nearly 7% year-over-year operating EPS growth and a 15% CAGR since 2010.

Given a diversified business portfolio, the recent acquisition of Coventry — which is creating operating synergies — and a strong balance sheet position followers of the stock are convinced that the company is on track for long-term growth.

Estimates Revision Show Strength

Driven by optimism surrounding the stock, over the last 30 days, the Zacks Consensus Estimate for 2014 earnings per share climbed 1.2% to $6.68.

Zacks Ranks and Other Stocks

Aetna carries a Zacks Rank #3 (Hold). Better-ranked players include Centene Corp. (CNC), UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP). All these stocks carry a Zacks Rank # 2 (Buy).