Aetna sees 2011 ahead of Street
Health insurer Aetna Inc
The surprise forecast from the No 3. U.S. health insurer, comes after rivals such as UnitedHealth Group Inc
They're the first managed care company to guide up for 2011, said David Heupel, a portfolio manager with Thrivent Investment Management, which holds Aetna shares. It's a very surprising turn of events.
Aetna, which also posted a slightly higher-than-expected quarterly profit, forecast 2011 operating earnings, excluding items, of $3.70 to $3.80 per share. Analysts were looking for $3.27.
Aetna's forecast equates to slightly higher operating earnings per share in 2011 than the $3.68 per share it reported in 2010.
Aetna said moves to lower operating costs, changes to its pension plan and a lower share count from share buybacks was helping 2011 per-share results.
Those positive factors are countering projected drops in membership and investment income among other negative pressures.
The industry faces new spending rules this year from the healthcare overhaul law that may cut into profits and is factoring in a rebound in use of medical services after Americans avoided procedures in 2010 to save money.
Even as other insurers projected lower 2011 profit, many analysts have deemed those forecasts to be conservative.
The overall take is that reform is not as bad as everybody has been fearing and there are ways to mitigate the headwinds from reform and enjoy nice year-over-year EPS growth, Sanford Bernstein analyst Ana Gupte said. They're guiding obviously conservatively...so there must be upside to the number.
Shares of rival insurers were mixed after Aetna's report. UnitedHealth shares were off 0.6 percent, while shares of WellPoint Inc
INDUSTRY'S HIGHEST DIVIDEND
Aetna said it had increased the cash dividend to 15 cents per share per quarter, equating to an annual payout of 60 cents, up substantially from its previous payout of 4 cents per year.
The move follows a similarly sharp dividend increase from UnitedHealth last year [ID:nN26188186]. Wall Street has speculated that the largest insurers could return more cash to shareholders.
Citigroup analyst Carl McDonald noted Aetna's dividend yield of 1.8 percent was slightly better than UnitedHealth's 1.2 percent yield. McDonald said he expects WellPoint to institute a dividend yield of 2 percent later this month.
Aetna now has the highest dividend in the managed care sector, and should attract long-only money from dividend only funds and spark multiple expansion, Gupte said in a research note.
Aetna said fourth-quarter profit rose 30 percent to $215.6 million, or 53 cents per share, from $165.9 million, or 38 cents per share, a year earlier.
Excluding items, earnings of 63 cents per share topped analysts' estimates by 1 cent, according to Thomson Reuters
I/B/E/S.
Revenue slipped more than 2 percent to $8.54 billion.
Rival health insurers have beaten analyst forecasts more substantially for the fourth quarter. Wells Fargo analyst Peter Costa said he suspected Aetna decided to boost operating expenses in the quarter as the company repositions under new Chief Executive Officer Mark Bertolini and for its new pharmacy benefit deal with CVS Caremark Corp
Bertolini, who ascended to the CEO job at the end of last year, wants to diversify the health insurer into information technology and international markets.
Aetna shares rose $3.48, or 10.5 percent, to $36.75 in morning trading on the New York Stock Exchange.
(Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn, Dave Zimmerman)
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