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Instant Analysis: Aetna Crushes Q4 EPS Estimates

By Eric Volkman – Feb 2, 2016 at 6:20PM

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The company posts a healthy gain in its bottom line to beat analyst expectations.

What happened?
Aetna (AET) is the latest big insurance company to report its Q4 and fiscal year 2015. For the quarter, revenue totaled slightly over $15 billion, a 2% improvement over the same period the previous year. Net income was much higher, by 38% to nearly $321 million. Aetna's operating profit saw 12% growth to $482 million, or $1.37 per share.

Those figures well exceed analyst estimates. On average, these were for just over $14.9 billion in revenue and $1.21 per share in operating profit.

For the full year, revenue was $60.3 billion, which bettered the fiscal 2014 tally by 4%. Net income was 17% higher, at just under $2.4 billion, and operating profit rose 13% to $2.7 billion ($7.71).

Aetna attributed the gains in quarterly and annual profit mainly to higher underwriting margins, plus a rise in fees and other revenue in its healthcare segment.

Does it matter?
Aetna's stock price got a modest lift from the news, which is entirely justified as the company nailed down a convincing earnings beat and despite areas of concern -- the individual health plans segment was in the red for the year, and operating profit guidance of "at least $7.75 per share" for fiscal 2016 doesn't quite meet the average analyst projection of $8.03.

But the individual segment is relatively small (about 1 million at the end of 2015, comprising a small part of the company's total enrollment of 23.5 million), and that profit guidance doesn't include the results of potential new asset Humana, which Aetna agreed to acquire last summer. The Justice Department has been reviewing the tie-up and is certainly taking its time to reach a decision. Regardless, Aetna believes it will close at some point this year.

Owning Humana would be a big boost to Aetna's business, as it would add to its rolls of medicare patients, a big and lucrative customer pool for the company. Humana has also been consistently, if not spectacularly, profitable.

Although Aetna will have a tougher time growing big if the merger isn't given the green light, that operating profit projection does anticipate improvement. The company is doing well at the moment, so whether alone or with Humana under its wing, it's not unlikely that it'll post more EPS beats going forward.

Eric Volkman has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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