Aetna Raises Forecast After Earnings Beat Estimates
Aetna Inc. (AET), the third-biggest U.S. health insurer, raised its 2010 earnings forecast after profit climbed 29 percent on cost cutting and premium increases.
First-quarter net income grew to $562.6 million, or $1.28 a share, from $437.8 million, or 95 cents, a year earlier, the Hartford, Connecticut-based company said today in a statement. Adjusted earnings of 77 cents topped the 72-cent average estimate of 14 analysts surveyed by Bloomberg. Revenue rose less than a percent to $8.62 billion.
Aetna increased its full-year projection after reporting lower-than-expected medical costs in the quarter, said Chief Executive Officer Ronald A. Williams. The company spent 82.5 percent of premiums it collected on members’ medical care, down from 83 percent a year earlier. That decrease was Aetna’s first since the third quarter of 2007, Barclays Capital analyst Joshua Raskin wrote in a note today.
“The results were much better than expected,” Raskin wrote. Based in New York, he recommends buying Aetna shares.
Aetna gained 74 cents, or 2.4 percent, to $31.24 at 4:05 p.m. in New York Stock Exchange composite trading. The shares have dropped 9.3 percent since March 21, when the U.S. House of Representatives approved a health-care overhaul designed to cover 32 million uninsured Americans while adding new taxes and regulations on health plans.
“There’s still a lot of uncertainty with respect to the impact of health-care reform,” Chief Financial Officer Joseph Zubretsky said today in a telephone interview. “That probably has a dampening effect on valuations.”
The company forecast full-year operating earnings of $2.75 to $2.85 a share, more than the prior outlook of $2.55 to $2.65.
Aetna announced 1,200 job cuts last year to cope with declining enrollment as well as the potential effects of the health-care overhaul in Washington.
“We are just now entering the regulation development phase,” Williams said on a conference call today. “Much in the legislation is left to be determined.”
UnitedHealth Group Inc., (UNH) the biggest health insurer by sales, raised its profit forecast last week after beating analysts’ estimates on better-than-projected enrollment. Indianapolis-based WellPoint Inc. (WLP), the second biggest, yesterday said its first-quarter profit surged 51 percent as a milder flu season helped slow medical costs.
Aetna said enrollment in its medical plans fell 2 percent to 18.7 million. That included increases of 7.6 percent in Medicare plans for the elderly and 14 percent in Medicaid policies for the poor.
While the insurer originally expected enrollment at private employers to slip by 350,000, it’s added more people than expected in government-backed Medicare and Medicaid plans, said Sarah James, a Wedbush Securities analyst in Los Angeles.
“They’re also having some nice growth in their government businesses,” James said in an April 21 telephone interview. “That’s balanced out some of the other losses in their sales.”
The insurer also served 834,000 people in Medicare prescription-drug plans. U.S. regulators said April 9 that they would suspend Aetna from marketing or enrolling new customers in the program after the company violated rules in dropping coverage of some medications.
The health-care law will require the company to spend at least 80 percent of premiums on health benefits, instead of profit or administrative expenses. This requirement may limit earnings at managed-care companies, said Jason Gurda, a Leerink Swann & Co. analyst in New York, in an April 22 note to clients.
Gurda said the rules will more likely drive smaller insurers away from selling to individuals and small employers, “allowing the remaining companies to consolidate the industry and increase enrollment.”
To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net