All posts from Zacks
Zacks in Our Research. Your Success.,

Will Lower Health Care Revenues Mar Aetna (AET) Q3 Earnings?

Aetna Inc. AET, scheduled to report third-quarter results on Oct 31, is expected to witness a decline in revenues in its Health Care segment due to lower contribution from Commercial health insurance partly offset by premium increase in Government business. The Zacks Consensus Estimate for the same is $14.4 billion, down 4% year over year.

Medical Benefit Ratio, a metric used to measure medical costs as a percentage of premium revenues, is expected to increase in the third quarter, led by an unfavorable performance in individual Commercial products.

The company projects an increase in the ratio driven primarily by the suspension of the health insurer fee and experience rating pressure in the company’s Group Commercial and Group Medicare Advantage products, partially offset by projected improvement in its Individual Commercial Insured products. The Zacks Consensus Estimate for the same is 84%, up from 82% in the year-ago quarter.

The Zacks Consensus Estimate for total medical membership, one of the key drivers of revenues is 22.14 million, down 4.2% year over year. The decline is likely to be driven by lower membership in the company’s public exchange compliant Individual and Small Group products.

The company’s focus on managing costs will keep a check on its operating expenses.

In the first quarter, Aetna resumed its share buyback which was terminated due to its planned merger with Humana. Share repurchases made by the company in the third quarter will help to lift its earnings.

Here is what our quantitative model predicts:

Our proven model shows that Aetna has the right combination of the two key ingredients to beat earnings estimates.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.68%. This is because the Most Accurate estimate of $2.12 is pegged higher than the Zacks Consensus Estimate of $2.09.

The positive ESP is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our">Earnings ESP Filter.

Zacks Rank: Aetna carries a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank of #1, 2 or 3 have a significantly higher chance of beating on earnings.

Other Stocks to Consider

Here are some companies from the health care sector that you may want to consider as these have the right combination of elements to beat on earnings in the third quarter.

Cigna Corp. CI  is set to report results on Nov 2. It has an Earnings ESP of +0.43% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

Teladoc Inc. TDOC has an Earnings ESP of +0.76% and a Zacks Rank #3 (Hold). The company’s earnings release is slated for Nov 1.

Humana, Inc. HUM has an Earnings ESP of +1.10% and a Zacks Rank of 3. The company is set to report results on Nov 8.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cigna Corporation (CI): Free Stock Analysis Report
Aetna Inc. (AET): Free Stock Analysis Report
Humana Inc. (HUM): Free Stock Analysis Report
Teladoc, Inc. (TDOC): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research