AET Market Research & Analysis Report
Updated Dec 22, 2015

Growth and Balance Sheet

In the third quarter, Aetna's net income slid 6 percent to $560.1 million from $594.5 million in last year's quarter. Adjusted results totaled $1.90 per share, which is 12 cents better than analysts had projected.  Operating revenue, which excludes investment gains, rose 2 percent to about $14.99 billion, which missed average analyst expectations of $15.16 billion. Health insurance is Aetna's main product, and most of its enrollment comes from commercial coverage sold through employers or directly to individuals. But the insurer and its competitors have been growing their stakes in the government funded Medicare and Medicaid programs. They're reacting, in part, to an aging baby boom generation that is becoming eligible for Medicare and the health care overhaul, which makes more people eligible for the state-and-federally funded Medicaid program. Aetna's commercial enrollment stood nearly flat at 23.5 million people, compared to last year's third quarter, as gains in government-funded coverage were countered by a drop in commercial enrollment. Income taxes climbed nearly 16 percent at nation's third-largest health insurer, to $460.5 million. That's mainly due to a higher, non-deductible health insurer fee levied as part of the health care overhaul. The Hartford, Connecticut, company also booked acquisition-related costs of $44.4 million in the quarter tied to a handful of deals. The biggest is its pending, roughly $35-billion acquisition of Medicare Advantage coverage provider Humana. Shareholders for both companies approved the deal earlier this month, but federal regulators are still reviewing it. Aetna's deal and competitor Anthem's pending acquisition of Cigna Corp. have stoked worry about competition in insurance markets, but Aetna executives have said its business largely complements Humana's.

AET raised its 2015 forecast again, saying that it expects adjusted earnings to range between $7.45 and $7.55 per share. That's up from a per-share earnings forecast of $7.40 in August, but still mostly short of the $7.53 that analysts are looking for.

Valuation

Aetna (AET) P/E stands at 16.83 below the industry average of 22.55, and below the S&P 500 average of 17.45 The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 7.30x to 14.80 trailing 12-month earnings. AET's current Price/Sales of 0.63 is above the average of its industry of 0.49. AET’s head to head comparison to its main competitors shows that the company has gross margin above the peer average, and one that is above the industry average. The achieved operating margin of the company is below the average operating margin of the selected competitors, and it is above the industry average. The quarterly revenue is above the industry average and below its main competitors. The stock is currently trading above its intrinsic value of $116.32 this suggests that the stock is undervalued at these levels. The beta of 0.46 implies lower volatility of the stock with respect to the S&P 500. AET has shown positive earnings consistency over the last five years. Company’s earnings have increased by 14.88% over the same period. The current quarter earnings in comparison to the same quarter last year are -4.79%. AET’s Total Debt/Equity of 49.37 is negative. AET’s current price levels are below the maximum level, is trading 22.4% below the 52 week high of $134.40, and the technical analysis give a bullish view of the stock. The majority of analyst ratings are bullish. AET dividend yield stands at 0.90% with payout ratio at 14.95%. 

About AET

Aetna Inc. (Aetna), is a diversified healthcare benefits company. The Company offers a range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, medical management capabilities, Medicaid healthcare management services and health information exchange technology services. The Company's operations are conducted in three business segments: Health Care, Group Insurance and Large Case Pensions. Its customers include employer groups, individuals, college students, part-time and hourly workers, health plans, healthcare providers, governmental units, government-sponsored plans, labor groups and expatriates. In April 2014, Aetna Inc completed the acquisition of United Kingdom based InterGlobal.

Competitor Comparison

Aetna Inc. N.V.

Highlights

The Company’s operations are conducted in three business segments: Health Care, Group Insurance and Large Case Pensions. The Company’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (providers), Governmental units, Government-sponsored plans, labor groups and expatriates. The stock closed yesterday’s trading session at $109.72. In the past year, the stock has hit a 52-week low of $87.25 and 52-week high of $134.40. AET has a market cap of $38.26 billion and is part of the healthcare sector.

• Strong market position in the US healthcare    
• Wide and deep product portfolio attracting large clients 
• Cost and quality focus with investment in health care technology

• Unbalanced segmental distribution  
• Overdependence on the US market

AET Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. AET's 52 week high is $134.40 current price is 109.72, is 22.4% below the 52 week high. 

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 16.83 below the average industry P/E ratio of 22.55 and is below the S&P 500 P/E ratio of 17.45. 

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.35% of AET stock. Management's representation is not large enough. This does satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

AET is trading in the range of $98.67 - $110.54 in the past 30 days. The stock has been showing support at $104.00 and resistance in the $113.00 range. The stock is trading above the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 57.87. Our indicators give a bullish view on AET. 

The financial health of the company the higher the better, we evaluate all the financial ratios of the company. 

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 8 Buy, 8 Outperform, 5 Hold, 0 Underperform and 0 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. AET’s annual EPS for the last 5 years were 4.18, 5.22, 4.81, 5.33, 5.68 this type of earnings action is positive. 

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 25% or should be less than the average Debt/Equity for its industry. AET’s have total debt/equity ratio of 49.37 which is negative.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. AET’s EPS growth for this quarter relative to the same quarter a year earlier is -4.79, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. AET’s annual earnings growth rate over the past five years is 14.88%, above the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.