Aetna (AET) Earnings Preview

Secondary plays:
WLP and UNH both reported on 1/22;
WLP fell 4%; UNH fell 6%.
HUM reported earnings this past Monday, stock fell 3.5%.
AET is down ~5% since UNH and WLP reported.
These stocks have been hit following earnings reports due to their medical-cost ratios...

AET is expected to report 4Q07 earnings 02/07/2008 before the mkt open with a conf call to follow at 8:30AM ET...

AET Consensus: First Call 4Q07 EPS of $0.88, revs of $7.17 bln; 1Q08 EPS of $0.94, revs of $7.49 bln; FY07 EPS of $3.49, revs of $27.4 bln; FY08 EPS of $4.03, revs of $30.6 bln...
Guidance: Co guided 4Q07 EPS $0.87; FY07 net medical membership growth of 600-650k (equates to 38k-88k in Q4); Q4 Commercial Medical Benefit Ratio of 79-79.5%. Co guided for FY08 EPS of $4.00; Net Medical Membership growth of at least 300k members in 1Q08; FY08 membership growth to be in excess of 650k. Co tends to report earnings within a nickel of consensus; AET always meats or beats earnings expectations. Revs have been growing in the 10% range...

Expectations: Analysts are skeptical on the fundamentals of the commercial mkt as pricing pressures persist due to competition from nonprofits and the lack of opportunities available to grow organically. There are also AET skeptics that have questioned its strength in its commercial business. On the costs front, numerous analysts have noted that AET has among the highest SG&A ratios in the industry, therefore, there is room for improvement. Note, co is a strong cash generator so analyst will be looking for any updates on the co pursuing acquisitions/share repurchases...