Aetna (AET) Up 6.9% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Aetna Inc. AET. Shares have added about 6.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Aetna Earnings Beat Estimates in Q4, Revenues Miss
Aetna reported fourth-quarter 2016 earnings of $1.63 per share, surpassing the Zacks Consensus Estimate of $1.45 and improving 19% year over year. The earnings upside was primarily driven by higher fees and other revenue in Aetna's Health Care segment.
Better-than-expected earnings drove up the share price by 1.92% in pre-market trading.
Aetna posted operating revenues of $15.72 billion, a tad below our consensus estimate of $15.9 billion, but up 4% year over year.
Revenue growth was primarily led by higher premiums in Aetna's Health Care segment.
Total operating expenses were $3.6 billion, 12.8% higher year over year, due to increased health care cost, and higher selling expense, and general and administrative expense.
Adjusted operating expense ratio was 19.8%, down from 20.5% in the year-ago quarter. The reduction in operating expense ratio was due to the increase in revenue coupled with the company’s focus on expense management that paid off.
Fourth-quarter pre-tax operating margin was 6.4%, up 40 basis points year over year.
Medical membership at Dec 31, 2016 remained flat sequentially at 23.1 million.
Full-year 2016 earnings per share of $8.23 increased 7% year over year, while revenues of $63.05 billion were up 5% year over year.
Segmental Performance
Aetna’s Health Care segment recorded operating revenues of $15 billion, up 4.2% year over year. The revenue increase was primarily due to higher premium yields and membership growth in Aetna's Government business. This was somewhat offset by membership loss in Aetna’s Commercial insurance business.
Operating earnings increased 18.3% from the year-ago quarter to $582 million.
Aetna’s Group Insurance operating revenues were up by just 0.3% year over year to $621 million. Operating earnings, however, increased 50% year over year to $33 million, due toimproved underwriting margins in Aetna's long-term care products, partially offset by lower underwriting margins in life products.
At Large Case Pensions, operating revenues were down 4.5% year over year to $64 million. Operating earnings were up 25% year over year to $5 million.
Financial Position
Total assets were $39.2 billion as of Dec 31, 2016 compared with $53.5 billion as on Dec 31, 2015.
Total debt to consolidated capitalization ratiowas 53.6% at Dec 31, 2016 compared with 32.6% at Dec 31, 2015, due to the issuance of $13 billion of senior notes to partially fund the proposed acquisition of Humana.
Days claims payablewere 54 at Dec 31, 2016, down 3 days sequentially.
2017 Guidance
The company expects 2017 operating earnings of ‘at least $8.55’ per share.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There has been one upward revision for the current quarter.
Aetna Inc. Price and Consensus
Aetna Inc. Price and Consensus | Aetna Inc. Quote
VGM Scores
At this time, Aetna's stock has a subpar Growth Score of 'D', however its momentum is doing a lot better with an 'B'. Following the exact same course, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the stock is suitable for value and momentum investors.
Outlook
Estimates have been broadly trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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