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Aetna (NYSE:AET) provides a broad array of consumer-directed, traditional, and voluntary health insurance products as well as group insurance products and retirement asset management services. Three business segments provide the majority of Aetna's revenues and they are Large Case Pensions, Group Insurance and Healthcare.

Large Case Pensions provides about 1.4% of Aetna's total revenues. Through this segment, asset management services are provided to defined contribution and defined benefit plans. Products include annuities and pensions. Aetna has not promoted this segment since 1993. Furthermore, this segment is in a run-off situation where Aetna is not actively seeking clients but is managing existing clients' assets. Group Insurance accounts for 6% of Aetna's total revenues and provides group long-term care, group life, and group disability insurance products. The Healthcare segment is Aetna's largest segment generating 92.6% of Aetna's total revenues. This segment markets health indemnity benefit products, preferred provider organization PPO, point-of-service POS, and health maintenance organization HMO products. Aetna health insurance products provide health insurance to over 18.2 million people in the United States.

Aetna is in the midst of acquiring Coventry Health Care (CVH) with the deal set to finish in mid 2013. We believe that the acquisition is a good one and that it should be accretive to earnings starting in 2014 adding $0.45/share to Aetna's earnings. Also, we believe that the acquisition will enhance Aetna's relative market position in the Medicare/Medicaid markets. As of late, Aetna has been cutting costs and expanding through smart acquisitions. Both of these actions should help Aetna adapt and thrive in the present era of new healthcare reform laws. We believe that Aetna has the cash flow, information technology resources, business scale, and business diversity to address the challenges that may arise with changes to the United States healthcare system. In our opinion, Aetna is good value considering that analysts' estimate that Aetna will earn $5.54 in 2013 and $5.85 in 2014 compared with 2012 earnings of $5.13.

We believe that Aetna is a good value for the following reasons:

  1. Aetna has an inexpensive forward earnings multiple of 9.8 times 2013 earnings as well as a PEG ratio of 1.03.
  2. ADP has a respectable dividend yield of 1.40% and a history of consistent dividend increases with a 14.3% increase in the dividend last year.
  3. Of the 19 analysts covering the stock, 12 give Aetna a Buy or Strong Buy rating.
  4. S&P has a Buy rating on the stock (4 out of 5 Stars) and a fair value estimate of $65.30/share.

Disclaimer: Ulfberht Capital is not an investment advisor. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.

Source: We Believe That Aetna Is Worth A Look