Aetna Inc.’s (AET) fourth quarter earnings of 63 cents per share came in a couple of pennies ahead of the Zacks Consensus Estimate. The company had earned 40 cents in the prior-year quarter.
Better-than-expected results stemmed from higher commercial underwriting margin due to lower utilization, partially offset by lower Commercial Insured membership. Results were also buoyed by lower share count due to share repurchase activity.
However, including net realized capital gains and other items, earnings came in at 53 cents per share, up a whopping 39% year over year.
The third largest commercial health insurer reported total revenue of $8.5 billion in the fourth quarter, ahead of the Zacks Consensus Estimate of $8.3 billion, but dropped 2% on a year-over-year basis. This was primarily due to a decline in Health Care premium revenues from lower commercial insured membership, as well as deterioration in the mix of business, partially offset by premium rate increases.
Total operating expenses were up 6.1% year over year at $1.8 billion due to the implementation of an agreement with CVS Caremark announced in July 2010 pursuant to which the llatter would act as third party administrator of Aetna’s prescription program for its Pharmacy Benefit Unit.
Aetna spent a total of $599 million in buying back 19.5 million shares during the quarter. For the full year, share buyback aggregated $1.6 billion.
Full-year 2010 core operating earnings of $3.68 per share were also ahead of the Zacks Consensus Estimate of $3.63. Total revenue of $34.0 billion also surpassed the Zacks Consensus Estimate of $33.7 billion but decreased 2% year over year.
Segmental Performance
Aetna’s Health Care segment recorded revenues of $7.9 billion, down 2.0% year over year. Total premium collected dropped 5.5% year over year to $5.2 billion due to a decline in commercial business, partially offset by increases in Medicare and Medicaid business. Total medical membership declined 446,000 year over year to 18.5 million.
The Group Insurance segment also saw a 1.5% year over year drop in revenues to $502.6 million. Operating earnings of $20.5 million , however, saw a reversal from a loss of $14.1 million in the prior-year quarter.
The Large Case Pensions also witnessed an 11.5% year-over-year decline in revenues to $125.9 million as the segment is in run-off mode. Operating earnings also plunged 25.6% to $6.4 million.
Outlook
After posting better-than-expected results for the quarter and full-year 2010, Aetna issued earnings guidance of $3.70 to $3.80 per share for full-year 2011. Given $3.68 per share earned during the year, we view the guidance as pretty conservative.
Aetna also declared an increase in dividend to 15 cents to be paid on quarterly basis. The first increased dividend will be paid on April 29, 2011 to all shareholders of record as of the close of business on April 14, 2011. Previously, the company paid a meager annual dividend of 4 cents per share.
This move by the company restores our confidence in its ability to generate strong cash flows and report favorable earnings.
Peers UnitedHealth Corp. (UNH) and Wellpoint Inc. (WLP), CIGNA Corp. (CI) have also benefited from a decline in health care use during the fourth quarter earnings.
Aetna carries a Zacks Rank# 2, which translates into a Buy rating. However, over the longer term, we carry a Neutral recommendation for the shares.
AETNA INC-NEW (AET): Free Stock Analysis Report
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