Can Aetna Cross Industry Hurdles to Growth Track?

On Mar 11, 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., UnitedHealth Group Inc. UNH being the holder of the first rank as per market share. Regardless of facing significant business challenges and uncertainties in 2014, Aetna exited the year with strong top- and bottom-line growth.

Aetna has taken several measures both organic as well as inorganic to grow its business. These measures are expected 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, with growth being primarily led by retail marketplaces, public exchanges, medicare advantage, dual eligibles and Medicaid.

The insurer is also actively working on its ACO strategy to manage medical cost.

The health insurer also sees attractive business opportunities from private exchanges and expects $7.5 billion of premium from this line by 2018.

Aetna is well poised to grow its public exchange business too. The company had 600,000 paid public exchange members in 2014 and projects solid growth in this business for 2015.

Other factors such as an expanding international business and a strong capital position make it a favored stock among investors. Over the last four years (2010–2014), Aetna’s total shareholders return has exceeded 2.4x the return of the S&P 500.

Nevertheless, hindrance to premium rate increases, medicare rate pressure and increasing medical costs would be some of the headwinds facing the company over the next several quarters.

Aetna carries a Zacks Rank # 2 (Buy). Other stocks worth considering in the industry include Centene Corp. CNC and Anthem, Inc. ANTM. Both stocks carry the same Zacks Rank as Aetna.