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Analyst Will Remain Skeptical Of Aetna's Future

|Includes:Aetna, Inc. (AET), CI, SPY


Aetna Inc. (NYSE: AET) is a diversified healthcare benefits company with headquarters in Hartford, Connecticut. Aetna offers three different services: group insurance, large case pensions and health care. With group insurance, Aetna provides a number of life insurance products, including voluntary spouse and dependent term life insurance, group term life insurance, and dismemberment and accidental death insurance. Large case pensions supply a variety of retirement products, such as annuity and pension products for tax-qualified pension plans.

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The health care category provides pharmacy benefit management, as well as medical, behavioral health, vision and dental plans. Founded in 1853 and basing its name on a volcano, Aetna eventually hired its first employee in 1854. Eleven years later, theeToro Openbook company's annual income topped $1 million. In 2013, with 49,000 employees, Aetna has 22 million medical members, 14.3 million dental members and 13.8 million pharmacy members. Its healthcare network includes more than 1 million healthcare professionals, with 597,000 primary-care doctors and specialists, and 5,300 hospitals. Its 2012 revenue totaled $35.54 billion.


On October 2, Aetna's share price closed at $64.76. The company's market cap is $24.10B, with an enterprise value of $28.99B. Its fiscal year ends on December 31, with a profit margin of 4.30% and an operating margin of 8.39% . Since October 2012, share prices have increased 56.43%. During the same 52-week period, Aetna stock reached a high of $69.19 and fell to a low of $40.32.

Aetna had strong shareholder returns in 2012, just over 11% compared with its three-year average (end-2012) of 50%. It also raised dividends in 2012, announcing a quarterly increase of 14%, an increase to $0.20 per share from $0.175 the previous year. Its balance sheet at the end of June 30 showed that numbers were still on the downside. Although the company had $4.40B in total cash, its total debt was $9.30B, while operating cash flow was $1.29B and levered free cash flow was $2.07B. As of October 2, most analysts rated Aetna as between a "buy" and "hold," which is partly due to Aetna's debt issue. Analysts also predict that Aetna's growth will fall by 1.30%. But, a huge turnaround is expected, with analysts predicting that Aetna will increase by 43.60% in the following quarter.

In 2013, total growth is expected to be 14.8%, falling to only 7.8% in 2014. The company should see a slight decline in growth over the next five years (beginning 2014) compared to the past five years when Aetna grew by 12.89% annually. In the next five years, it is estimated that growth will increase annually by 11.57% .

Balancing Act

The biggest concern for investors buying into Aetna is how it plans balance its debt. Although Aetna has manages to grow in in terms of overall revenue, sales and growth, it remains to be seen if it can find a solution to its biggest financial issue. Until this happens, analysts will remain skeptical about Aetna and its future in the stock market.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AET over the next 72 hours.

Stocks: AET, CI, SPY