As we've already seen from the likes of UnitedHealth
While I've been cautious about buying into any of those previously mentioned names, I've got to admit I'm a bit curious today about Aetna
I'd say the fourth quarter was a pretty good one for Aetna. Overall revenue rose about 14%, with a 14.6% rise in premium revenue making up the bulk of the number. Expense control was solid -- administrative costs rose less than 7% and the medical cost ratio fell almost a full point. That, in turn, led to a 38% rise in the company's per-share operating earnings.
Membership growth was a little sluggish on an annualized sequential basis (a bit less than 3%), but the company was able to boost membership for the full fiscal year by more than 8%. I for one will be curious to see how membership trends play out through 2006. Will the recent acquisitions from UnitedHealth and WellPoint provide a sustained boost? Will the focus of other companies on Medicare clients give Aetna more room to move in commercial membership growth (since Aetna is a pretty modest Medicare business)?
It's also worth mentioning that Aetna may feel enticed to do a deal of their own. I don't think they need a deal to stay competitive with UnitedHealth or WellPoint, but they still might view a company like CIGNA
There will probably always be reasons to worry about this sector -- rising medical costs, limited future premium increases, government interference, etc. -- but I believe those risks are generally manageable. Furthermore, I like Aetna's cash flow production and think that it makes these shares worth a closer look.
For more Foolish thoughts on health insurance:
Coventry and UnitedHealth are Motley Fool Stock Advisor recommendations.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).