Wednesday, February 2, 2011

Aetna Inc. (NYSE: AET): Q4 Earnings Preview 2010

Aetna Inc. (NYSE: AET), the third largest health insurer, is scheduled to release its fourth-quarter earnings before the opening bell on Friday, February 4, 2011. Analysts, on average, expect the company to report earnings of 62 cents per share on revenue of $8.40 billion. In the year ago period, the company reported earnings of 40 cents cents per share on revenue of $8.76 billion.

Aetna Inc. operates as a diversified health care benefits company primarily in the United States. Its offers a range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans.

In the preceding third quarter, the Hartford, Connecticut-based company's net income was $497.6 million, or $1.19 per share, compared to $362.2 million, or 73 cents per share, in the same quarter last year. On an adjusted basis, the company earned 84 cents per share in the latest quarter. Revenue slipped to $8.54 billion from $8.72 billion. 

At its last earnings call in November, the company boosted its fiscal 2010 guidance. The company said that it now expects full-year 2010 operating earnings per share to be approximately $3.60. Previously, the company anticipated annual operating earnings to be in a range $3.05 to $3.15 per share. 

Early in December, the company's board approved a buyback program of up to $750 million additional common shares. 

In an effort to improve health care cost and quality, Aetna announced last month the intention to acquire health information exchange technology provider – Medicity Inc. boosting the health insurer's presence in the electronic health-records sector as the U.S. government pushes hospitals and physicians to adopt digital records systems. The acquisition of Medicity based in Salt Lake City, is expected to cost $500 million to Aetna. The purchase will be funded via in house resources and will not be accretive to 2011 earnings. Medicity connects 760 hospitals and 125,000 physicians.

Recently,  Aetna announced a three-year reinsurance agreement with Vitality Re Limited, a newly formed special purpose insurance company based in the Cayman Islands. Per the agreement, Aetna will get $150 million of collateralized excess of loss reinsurance coverage on a portion of its group commercial health insurance business. The agreement is a part of Aetna’s long-term capital management strategy, which will free up capital held with respect to its covered business that can be deployed effectively for other purposes.

Favorable comparables and stringent cost management could continue to power Aetna through the next several quarters. Aetna is currently working on several projects, including mobile applications, to improve service and lower costs.  The company is preparing itself to benefit from the $25.8 billion subsidy for investing in health information technology effective 2011, which was passed by the United States Congress in February 2009. Aetna is seeking to diversify into health information technology and international markets after the passage of new U.S. healthcare reform law. The new law threatens to crimp profit margins and bring upheaval to the health insurance market, leading Aetna and other companies to explore different avenues. Aetna's strategies "include a broad spectrum of healthcare capabilities and not just healthcare insurance," CEO Mark Bertolini said in November.

Full Disclosure: None.

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