Aetna is due to acquire another major player in the industry – Humana Inc. (HUM– Analyst Report). The transaction, which will close by the second half of 2016, has been approved by shareholders of both companies. The combination of the two majors will likely be synergistic, as the combined entity will command the position of the second-largest managed care company in the U.S. Specifically, the acquisition will expedite Aetna’s ability to grow in Medicare Advantage. The combined company is expected to bring in at least $11 of operating earnings per share in 2018.
Aetna also continues to expand its geographic footprint and will offer products in 745 counties for 2016.
Moreover, Aetna’s Accountable Care Organization (ACO) strategy is paying off. It currently has over 200 ACO deals in its pipeline that could serve 60% of the U.S. population.
Like its peer UnitedHealth, which cited problems on its individual exchange business, Aetna also disclosed that its individual exchange business is challenged. Aetna will now participate on individual exchanges in 15 states in 2016 as compared to 17 states in 2015. The company also reported a decline of nearly 100,000 members on ACA compliant individual plans that it sold on exchanges. Nevertheless, the company sees long-term market potential with its public exchange opportunities.
On the balance sheet front, Aetna is well placed with 33% debt to capital ratio, which is poised to increase to 47% upon the closure of the Humana buyout.
Aetna carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are UnitedHealth Group Inc. (UNH – Analyst Report) and Centene Corp. (CNC– Snapshot Report). While UnitedHealth carries a Zacks Rank #1 (Strong Buy), Centene holds a Zacks Rank #2 (Buy).
Date: January 4, 2016