Can Aetna (AET) Maintain Its Earnings Streak This Season?

Health insurer Aetna Inc. (AET) is scheduled to report fourth-quarter and full-year 2014 results before the opening bell on Feb 3.

In the last quarter, this company delivered a 13.3% positive earnings surprise. The average beat for the trailing four quarters is 11.1%.

Will Aetna deliver a positive earnings surprise this quarter as well? Let's see what factors might have influenced the earnings report this time around.

Points to Consider Ahead of Q4 Announcement

Aetna’s earnings for the quarter will not be driven by any particular factor but by a host of growth measures undertaken over the past several months. These drivers include strong organic membership growth in public and private exchanges, Medicare Advantage, dual-eligible contracts, Medicaid expansion and accretion from Coventry acquisition.

Earnings will, however, be affected by the medical cost trend that is expected at the mid to upper end of the 6.0–7.0% range.

Results might also reflect loss expected in its individual business. Aetna digested a modest loss for the first nine months in this line and projects the same for the fourth quarter as well.

For 2014, the insurer expects revenues in the range of $57–$58 billion, the midpoint of which is 21.8% higher than $47.2 billion reported in 2013.

Operating earnings for 2014 are 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.

The company also expects year-end 2014 total medical membership to be higher than the estimated 23.4 million members.

Earnings Whispers

Our proven model does not conclusively show that Aetna is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Zacks ESP: Aetna’s Most Accurate estimate is pegged at $1.22 per share, which is in line the Zacks Consensus Estimate. The Earnings ESP is thus 0.00%.

Zacks Rank: Aetna has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Centene Corp. (CNC) with Earnings ESP of +1.77% and a Zacks Rank #1.

Humana Inc. (HUM) with Earnings ESP of +0.86% and a Zacks Rank #2.

Assurant Inc. (AIZ) with Earnings ESP of +2.99% and Zacks Rank #3.