(Adds comments from conference call, interview with CFO and analysts, updated
stock price.)
By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
Aetna Inc. (AET) posted solid second-quarter results and maintained its full-
year outlook for growth in earnings, membership and medical costs, leading to a
modest rally in the managed-care sector.
The Hartford, Conn., health insurer, which has maintained steady footing in a
rocky year for the industry, said it isn't immune to economic headwinds and
anticipates a slight pickup in medical costs and possible pressure on membership
growth for 2009. Fundamentals remain strong, however, with the company ready to
adjust to changes, executives said.
Aetna expects "solid operating earnings per share growth in 2009," and
maintains its long-term goal of increasing operating EPS by 15% annually, Chief
Executive Ronald Williams said during a conference call.
"We are not immune to industry issues such as lower investment yields and the
impact of a slowing economy," he said. Aetna, however, identifies environmental
changes early and takes action, he said. The company factors those trends into
its guidance, he said.
Aetna recently traded up 4%, or $1.23, to $41.94, leading shares of other
managed-care companies somewhat higher. While the Standard & Poor's 500 managed-
care index is down 42% year to date, it's up 18% since the major players started
posting second-quarter results early last week.
Managed-care stocks have been hit this year by profit shortfalls, health-plan
mispricing, increasing medical costs, economic pressures and price competition
for a stagnant or shrinking pool of key corporate risk, or fully insured,
accounts.
Aetna, in contrast to most of its peers, has maintained its earnings targets
and expanded its commercial fully insured membership, including enrollment in
individual plans.
Aetna reported a 6% increase in second-quarter profit, while membership in its
medical plans reached nearly 17.5 million, an addition of 646,000 since the end
of last year. Revenue increased 15% to $7.8 billion year over year.
Net income rose to $480.5 million, or 97 cents a share, from $451.3 million,
or 85 cents a share, a year earlier. Excluding items, earnings came to 94 cents
a share, compared with 83 cents a share a year earlier, exceeding the Thomson
Reuters average analyst estimate of 93 cents a share for the recent quarter.
The medical cost ratio in Aetna's commercial plans was 80.5%, the same as in
the second quarter of 2007.
Enrollment growth in Aetna's individual, global benefits and government
customer segments in the second quarter was partially offset by expected in-
group attrition, especially in national accounts, "due primarily to the slowing
economy," Williams said.
Aetna continues to expect operating earnings per share of $4 this year, and
maintained its outlook for an additional 850,000 to 900,000 health-plan members
for the year, with about half of those new members in fully insured, rather than
administrative, or self-funded, accounts. That's a higher percentage of new
fully insured members than the company previously had forecast, a change the
company attributed to the addition of a large Medicaid account.
Aetna expects membership to be higher in January 2009 than it was in January
2008, with most of the new membership in administrative-fee accounts, although
economic headwinds are likely to put pressure on membership gains as employers
downsize, Chief Financial Officer Joseph Zubretsky told Dow Jones Newswires.
Aetna aims to continue to price its premiums to keep pace with growing medical
costs, he said, echoing comments he made on the conference call.
While Aetna continues to expect medical costs to increase by 7.5% this year,
give or take a half a percentage point, pharmaceutical units costs are likely to
place upward pressure on medical costs in 2009, as a result of fewer
introductions of low-cost generic drugs, Zubretsky said on the call. Medical
cost growth, or trend, is drifting to the upper end of Aetna's range, he said.
Wachovia analyst Matt Perry called Aetna's results a relief following reports
from other key players last week.
"We think this is the last piece of evidence investors needed to believe that
2008 margins have broadly stabilized," Perry wrote, saying the group has reached
a valuation inflection point. Although Cigna Corp. (CI) and some others have yet
to report, their results are less relevant for sector sentiment, he said.
Matthew Borsch of Goldman Sachs called Aetna's second quarter mostly solid,
although "tight" given that healthcare earnings missed his estimate and the
commercial medical cost ratio exactly met guidance.
"We also continue to flag Aetna's market share gains in the price-sensitive
commercial risk segment...even as others have seen significant losses in the
face of market price competition and attrition of employer coverage," Borsch
wrote.
Goldman Sachs doesn't believe Aetna can remain immune from the margin pressure
that has hit other carriers in the commercial risk business, although "we are
frankly unsure of the timing for earnings downside." The firm's estimate for
Aetna's 2009 earnings is well below that of the Street overall.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@
dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most
important business and market news, analysis and commentary: http://
www.djnewsplus.com/al?rnd=%2B%2B0A4EKn7ZlAi6szOQUadw%3D%3D. You can use this
link on the day this article is published and the following day.
(END) Dow Jones Newswires
07-31-08 1250ET
Copyright (c) 2008 Dow Jones & Company, Inc.
