Healthcare Stocks: Aetna (AET)
The smallest of these three healthcare stocks, Aetna (AET) announced record revenues on Thursday, in large part because of its $8.7 billion deal to acquire Coventry Health Care. But AET stock missed Wall Street expectations by 2 cents on the bottom line, reporting EPS of $1.34 — an improvement over the 94 cents per share in the year ago quarter.
Aetna’s earnings miss — and its disclosure that it will lose money in its Obamacare exchange this year — caused AET stock to drop nearly 2%.
Those results illustrate the twin challenges healthcare stocks are facing from Obamacare: a larger pool of older, sicker and poorer people enrolling first, and the coming “doc shock” (subscribers losing their doctor as insurance companies like Aetna tighten up their networks).
The company’s acquisition of Coventry gives it an additional 110,000 Medicare Advantage members in the first quarter of 2014. While this growth will be valuable to AET stock down the road, the company has gained exposure to a plan that faces considerable federal cuts.
With HHS’ draft rules on network access casting a shadow of uncertainty over Obamacare, Bertolini recently suggested that AET might need to double its rates or opt out of the exchanges. Because of this, Aetna will not release its 2015 rates until May 15.
Bottom Line: Although all three of these healthcare stocks — UNH, WLP and AET — look like good bets over the long term, shares are likely to take a near-term hit of 10%. So if you want to play these healthcare stocks, buy on the dip.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.