On Jun 21, 2013, we upgraded our recommendation on the shares of Aetna Inc. ( AET) to Outperform from Neutral as we gain increased confidence about the company’s operations.
Aetna has been performing strongly over the past several quarters and we expect the company to continue performing well going forward, backed by the growth in Medicaid and Medicare network segments, fast-growing health services segment, and an expanding provider network.
Aetna’s execution over the last few years has been excellent. While performance has been strong across the board, a stand-out area is the organic and acquisition-fueled growth.
Aetna has made huge investment in technology upgradation as well as acquisition.
Aetna recently concluded the acquisition of Coventry. The acquisition enhances the company’s Medicaid footprint, gives it more credibility, and positions the company better for the enormous Medicaid RFP, expansion and dual growth opportunities.
It has also made a number of acquisitions in its Commercial business over the past 2-3 years.
Additionally, Aetna is aggressively forming Accountable Care Organizations to generate incremental revenues.
We also have a growing optimism for international growth opportunities at Aetna. The company is actively entering foreign markets. It is targeting Asian markets like India and China both of which present huge potential for growth.
A strong balance sheet with an efficient capital management program provides inherent strength. The company is also witnessing an increase in membership.
Our optimism is echoed in the estimate revisions as well. Over the last 60 days, 4 of the 9 estimates moved north, pushing up the Zacks Consensus Estimate for 2013 by 5.5% to $5.79. Estimates for 2014 rose 8.6% to $6.31 as 9 of 11 estimates were raised over the same time frame. The expected long term earnings growth is 11.5%.
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