Aetna (AET): Can its Earnings Surprise Estimates in Q2? - Analyst Blog

Health insurer Aetna Inc. AET is scheduled to report second-quarter 2015 results before the opening bell on Aug 4.

In the last quarter, this company gave a positive earnings surprise of 21.94%. The average beat for the trailing four quarters is 10.1%.

Will Aetna deliver a positive earnings surprise this quarter as well?  Let's see what factors might have influenced the earnings report this time around.

Points to Consider Ahead of Q2 Announcement

Aetna’s second quarter’s earnings may see revenue declines at Large Case Pensions, due to the termination of an existing contract with a customer that resulted in the discontinuation of certain services. The segment reported a decline in revenues in the first quarter and the same is expected this quarter.

Earnings will also see a drag from an increase in operating expense ratio, primarily due to higher investment spending and the inclusion of general and administrative expenses from the 2014 acquisitions.

Nevertheless, earnings for the quarter will also be benefitted by a host of growth measures undertaken over the past several months. These drivers include strong organic membership growth in public and private exchanges, Medicare Advantage, dual-eligible contracts, Medicaid expansion and synergies from the Coventry acquisition.

During the quarter, the company announced the acquisition of Humana Inc. (HUM). Though the buyout will not have any impact on the quarter’s earnings, over the long term it will increase the company’s financial leverage but will also make it a leader in the health insurance industry.

Earnings Whispers

Our proven model does not conclusively show that Aetna is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below:

Zacks ESP: Aetna’s Most Accurate estimate is pegged at $1.83 per share, which is a penny lower than the Zacks Consensus Estimate. The Earnings ESP is thus -0.54%.

Zacks Rank: Aetna has a Zacks Rank #3. Though this increases the predictive power of ESP, the company’s ESP of -0.54% makes surprise prediction difficult.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

Team Health Holdings, Inc. TMH with Earnings ESP of +4.35% and a Zacks Rank #1.

Halyard Health, Inc. HYH with Earnings ESP of +85.2% and a Zacks Rank #3.

Aegerion Pharmaceuticals, Inc. AEGR with Earnings ESP of +85.19% and Zacks Rank #3.

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AETNA INC-NEW (AET): Free Stock Analysis Report
 
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