Even as shareholders of Aetna Inc (NYSE:AET) prepare for the buyout by CVS Health Corp (NYSE:CVS), AET stock has been doing well. However, AET stock took a hit after earnings were reported. Let’s see what CVS will be buying as we approach the acquisition date.

Q4 adjusted net income came in at $411 million, down from $578 million the previous year. For the year, however, net income was $3.3 billion compared with $2.9 billion last year. The weak Q4 numbers were mostly the result of higher costs.

Adjusted revenue for Q4 was $14.7 billion, down from $15.7 billion. For all of 2017, adjusted revenue was $60.7 billion respectively, down from $63.0 billion. Not surprisingly, the result was due to lower premiums and lower membership in Aetna’s Obamacare programs.

Alas, margins were terrible. Just 1.6% net margins for Q4, although that was up from 0.9%. For the entire years 2017 and 2016, margins were better, at 3.1% and 3.6%. To be fair, margins got hit by calling off the Humana Inc (NYSE:HUM) merger.

So if we back out the hit from that, margins are better but still down. Q4 adjusted margins were 4.8% but down from 6.4%. However, pre-tax margins for the entire year were 9%, up from 8.3%.

AET benefited from a big move in regards to its financial position, namely the repayment of $12.6 billion of senior notes. AET is backed by $2.2 billion in cash and investments.

Aetna has a health care segment which it is probably best known for. That’s basically its insurance business, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services.

AET Q4 pre-tax adjusted earnings fell big time to $662 million, down from $964 million. There are many reasons for this, and it’s one of the reasons I don’t like to invest in health insurance stocks because the accounting is complex. AET stock management says:

“The decrease in income before income taxes and pre-tax adjusted earnings was primarily due to lower favorable development of prior-period health care costs estimates, higher targeted investment spending on Aetna’s growth initiatives and the negative impact of the temporary suspension of the HIF in 2017, partially offset by reduced losses in Aetna’s individual commercial products.”

Oof. That’ll put you to sleep.

Aetna dumped its Group Insurance segment, which housed its group life insurance, group disability insurance and absence management businesses.

Bottom Line on CVS-AET Merger

So I can’t say I’m crazy about the CVS merger with these kind of numbers. That is, I see the long-term synergy here, but it may take a lot of digestion to get these two companies fixed up. I like the idea in principle, though. Combine pharmacy and health benefits along with preventative care in the local store clinics.

This would also give people a chance to tackle small health care issues without leaning too heavily on the regular doctor pathway to health. That could mean savings over the long term, as the insurance division can encourage people to use the store clinics.

I think this will work out, presuming the merger is approved, and I think the combined company probably is worth looking into more for a portfolio position.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.