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Earnings Preview: Aetna reports on 1Q Thursday

The Associated Press

Aetna Inc. will become the latest health insurer to tell investors and analysts how the managed care sector's year is shaping up when it reports first-quarter results on Thursday.

WHAT TO WATCH FOR: The cost of care and whether patients are using more of it are the main questions analysts want to answer as health insurers report their earnings.

Lower-than-expected growth in health care use has helped insurers for the past several quarters, and it helped Aetna, based in Hartford, Conn., turn in a 73 percent earnings jump in last year's fourth quarter.

Insurers have said they expect use to increase this year, but it likely will remain below pre-recession levels. Competitor UnitedHealth Group Inc. said last week it saw an increase in outpatient care like doctor visits in its first quarter, but growth in more expensive inpatient care remains slow.

Citi analyst Carl McDonald said in a report previewing first-quarter results that utilization remains "fairly benign," and cost trends have been stable so far this year. He also noted that the leap year provided an extra day of medical spending in the first quarter, which will affect results but the utilization trend will offset this.

He anticipates that sector earnings will be higher than the consensus and that forecasts for the year will rise, but he noted that the market already expects these things.

That means the stock reaction to any positive earnings reports could be muted since good news is expected.

Aetna expects 2012 adjusted earnings of about $5 per share, which is below the current average expectation from analysts for earnings of $5.15 per share, according to FactSet.

WHY IT MATERS: Aetna is the third-largest health insurer, trailing only WellPoint and UnitedHealth in both enrollment and revenue. Its medical enrollment was about 18.5 million at the end of last year. Health insurance is Aetna's main product, but the company also sells dental, group life and disability coverage.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect, on average, earnings of $1.39 per share on $8.61 billion in revenue.

LAST YEAR'S QUARTER: Aetna's 2011 first-quarter net income climbed 4 percent, helped by a drop in health care costs and a $174 million gain because claims left over from previous quarters came in below expectations due to lower-than-projected care use. The insurer earned $586 million, or $1.50 per share, on $8.39 billion in revenue.