By Brandon Clay
If you follow events in our nation’s capital, you know President Obama’s health care reform package is controversial. The argument over a bill whose price tag could top $1 trillion has had a profound impact on the health insurance sector. Stocks like Aetna (NYSE:AET) alternately suffered and rallied as the reform talk dragged on. Most recently, AET has been trending lower.
Doing business with the government can be tough, especially when the state of the union is not what it used to be. That said, there’s no getting around the fact that Aetna is a well-run company with a dominant market position. Management is making efforts to lower costs, and those efforts are starting to show results. The research arm of Collins Stewart recently upgraded AET from sell to hold. We think it’s closer to a BUY. Here are a couple of reasons.
For one, Aetna’s shares have held up relatively well in the face of lower 2010 guidance. Standard & Poor’s expects Aetna to earn $2.60 a share this year and has a $33 price target on the stock. This represents a decent premium from where the shares currently trade. It’s also worth noting that Aetna said its employer healthcare plans will spend less this year on medical costs, a key metric watched by Wall Street analysts.
Second, when the company reported earnings last Friday, AET options volume was heavily tilted to the call side. The ratio of calls to puts rose to 56%, higher that it has been in a year. This may indicate an increasing bullish bias toward Aetna.
Finally, some investors overlook Aetna’s international business. The company’s Global Benefits unit is exploring growth opportunities in Africa and the Middle East. Aetna sees great opportunity outside the U.S. Global markets could be a positive catalyst for Aetna shareholders going forward.
Health insurers do have some near-term headwinds, but the solid long-term outlook for Aetna makes it a compelling opportunity for astute investors. In addition, the stock may have found support near $28. If you’re looking for a solid, too-big-to-fail healthcare stock that can profit whether or not health care reform passes, go with AET.
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Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.