Aetna Inc. (AET): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
Aetna's fourth-quarter 2013 earnings of $1.34 per share missed the Zacks Consensus Estimate by a penny. Earnings were, however, up 43% year over year. The improvement was driven by earnings accretion from the Coventry acquisition as well as higher underwriting margins primarily in the Commercial business, partially offset by lower underwriting margins in the Medicare business. Earnings in 2014 are expected to be impacted by headwinds related to the Affordable Care Act. However, Aetna is poised to benefit from growth in Medicaid and Medicare segments, the fast-growing health services segment and an expanding provider network. Aetna has also made considerable investments in products and technology in a bid to extend its core health business and capitalize on exciting new consumer and provider opportunities emerging in the marketplace. However a low interest rate environment, Medicare rate pressures and increasing medical costs will remain as near-term headwinds. We thus maintain a Neutral recommendation on the stock.

Overview:

Aetna, Inc., based in Hartford, CT, was founded more than 150 years ago, and is a provider of healthcare, dental, pharmacy, group life, disability, and long-term care benefits. The company's customer profile includes employer groups, individuals, college students, part-time and hourly workers, health plans, governmental units, government-sponsored plans, labor groups and expatriates.

Aetna derives its revenues primarily from insurance premiums, administrative fees, investments and other revenues. The company operates through three business segments:

Health Care Products consist of medical, pharmacy benefits management, dental, behavioral health and vision plans These are offered both on insured basis and an employer funded, or administrative basis. This segment offers health maintenance organization (HMO) plans, preferred provider organization PPO plans, point of sales (POS) plans, and indemnity plans on a risk as well as employer funded basis. The company generates premiums on plans offered on a risk basis, and generates administrative services contract ASC fees on plans which have been offered on an employer-funded basis

Group Insurance Derives revenues from the premium earned by its three insurance products - Group Life, Group Disability, and Long-Term Care.

Large Case Pensions This segment offers a range of retirement products to contract holders for investment purposes, such as pensions and annuities, and earns premium revenue or a management fee for the services provided.

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