Aetna Inc. has $1.2 billion in cash to make acquisitions and share repurchases even after paying a 15-cent quarterly dividend in April, said Chief Financial Officer Joseph Zubretsky.
The third-biggest U.S. health insurer said today it will increase its annual shareholder payout and issued a 2011 forecast that beat analyst estimates by up to 61 cents. Aetna, based in Hartford, Connecticut, forecast profit of $3.70 to $3.80 a share, exceeding the $3.29 average estimate of analysts surveyed by Bloomberg. Aetna paid a 4-cent dividend in November.
Aetna’s ability to invest and grow through acquisition won’t be affected by the April payment to investors, Zubretsky said in a telephone interview. Aetna reported $1.8 billion in cash as of Sept. 30, according to Bloomberg data, and now has $1.2 billion available for deals and share repurchases, he said.ae
“Our old dividend was a nominal dividend, not really meaningful,” Zubretsky said. “I would say that this marks the introduction of a meaningful dividend for shareholders.”
Aetna rose $4.15, or 12 percent, to $37.42 at 4 p.m. in New York Stock Exchange composite trading. It was the biggest single-day gain since July 2009. The shares increased 28 percent over the past 12 months.
Aetna has created a team to study acquisitions and diversification opportunities, said Ana Gupte, an analyst at Sanford C. Bernstein in New York. It’s likely the insurer will use the money to buy service operations similar to Medicity Inc., which Aetna purchased last month for $500 million, rather than building enrollment, she said.
Analysts questioned how much money would be left for investment or acquisitions after Aetna announced Dec. 3 its board authorized the repurchase of $750 million in shares in addition to $257 million in outstanding repurchase authority.
“To our understanding, a large part of the $1.2 billion goes to stock repurchase,” David Windley, an analyst at Jefferies & Co. in Nashville, Tennessee, said in an e-mail. “The remainder for acquisitions is much smaller.”
The insurer also reported fourth-quarter profit excluding some items of 63 cents a share, 1 cent more than the average estimate of nine analysts surveyed by Bloomberg. Net income rose 30 percent to 215.6 million, or 53 cents a share, from $165.9 million, or 38 cents, a year earlier.
Aetna’s enrollment numbers fell to 18.5 million, down 2.4 percent from the 18.9 million it reported at the end of the 2009. First-quarter 2011 enrollment may dip to 17.8 million, Aetna reported, after the company was banned in April by the Centers for the Medicare and Medicaid Services from selling Medicare Advantage plans and standalone prescription drug plans for those in the U.S. government’s health program for the elderly and disabled.
Aetna also is seeing losses in its commercial enrollment because of job losses and a refusal to match all prices in the marketplace, Zubretsky said.
“We always try to grow and grow profitably,” Zubretsky said in the interview. “When confronted with situations where we cannot do both, we always try to maintain our margin.”
Zubretsky said he was disappointed with the membership numbers though Aetna projects enrollment will be unchanged for the year.
The insurer is actively seeking acquisitions with an emphasis on commercial health plans, Medicare and Medicaid plans and service-based operations similar to its health-data deal for Medicity. The service areas may also include disease management and wellness operations, he said.
UnitedHealth Group Inc., the largest health insurer by sales, raised its annual dividend to 50 cents a share from 3 cents in 2010.
“There are limited areas for reinvestment of cash flow in this business for companies this large,” Jason Gurda, an analyst at Leerink Swann & Co. in New York said in an e-mail. “However, I had thought that Aetna would wait another year or so before raising their dividend.”