Despite all the talk of constriction in the credit markets, Wall Street's buyback binge continues. The latest adherent to the "Corporation, buy thyself" philosophy is health insurer Aetna (NYSE:AET), which on Friday announced that its board has authorized a $1.25 billion hike in its stock-repurchase authorization.

That's really the extent of the news. Aetna didn't even go through the motions of arguing why it felt the buyback was a good idea. But let's not let that keep us from asking whether Aetna can afford to spend $1.25 billion on itself. And even if it can, should it?

Can it pay?
No doubt. Aetna carries more than $12 billion in net cash on its balance sheet -- enough to (in theory, at least) pay for the authorized buyback 10 times over. What's more, if the last 12 months' results are any indication, there's plenty more cash where that came from. Over the last four reported quarters, Aetna has generated a whopping $1.9 billion in free cash flow. Even with its bank account bone dry, Aetna could easily accomplish this entire buyback over the course of several months' operations.

Should it pay?
I'm neither a doctor, nor an insurance administrator, nor an actor playing either on TV. But for what it's worth, my answer is "yes."

P/E

Price-to-Free Cash Flow

Projected Growth Rate

Aetna

16

15

16%

UnitedHealth (NYSE:UNH)

15

12

16%

WellPoint (NYSE:WLP)

15

10

15%

Cigna (NYSE:CI)

16

19

12%

Coventry Health (NYSE:CVH)

17

9

14%

Foolish takeaway
The way I see it, investors can't go far wrong buying any of the health insurers, with the possible exception of Cigna (which carries the highest multiples of the bunch.) For its part, Aetna may not be the cheapest stock in the industry -- that honor goes to either UnitedHealth or Coventry Health, depending on whether you like your valuations in plain-vanilla PEG, or extra fancy price-to-free cash flow-to-growth.

Of course, I suspect there's a reason why both UnitedHealth and Coventry made the cut as Motley Fool Stock Advisor recommendations, and Aetna didn't -- but that's neither here nor there. In this column, we're simply looking at whether Aetna's board is making a rational decision, and using its shareholders' money for a reasonable purpose. These numbers tell me that it is.

Fool contributor Rich Smith owns shares of UnitedHealth. Find out why Fools prefer this stock, and that of Coventry Health, above Aetna and all the rest, when you try out Stock Advisor for 30 days free of charge. The Motley Fool takes stock in its own disclosure policy.