Why Aetna Shares Slumped


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of diversified health-care benefits company Aetna (NYS: AET) dipped as much as 12% earlier today after the company reported disappointing first-quarter results.

So what: For the quarter, Aetna reported a drop in quarterly net income to $1.34 (excluding one-time items) which is $0.06 worse than Wall Street had expected. Revenue, however, did rise 6% to $8.92 billion as enrollments ticked higher by 0.6%. The company blamed rising medical claim costs and higher administrative expenses as the primary culprit for the earnings miss. Specifically, premium revenue spent on medical costs increased to 81.5% from 79.2% in the previous year.

Now what: What's particularly disturbing about Aetna's miss is that larger peers UnitedHealth Group (NYS: UNH) and WellPoint (NYS: WLP) both surpassed Wall Street's forecasts and upped their full-year guidance. Being that this seems isolated just to Aetna isn't good news for Aetna shareholders. Although it kept its full-year guidance unchanged and does expect overall enrollment to grow from 17.92 million to 18.2 million by year's end, Aetna's inability to curb rising medical costs is a worrisome trend that I'd just as soon avoid.

Craving more input? Start by adding Aetna to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of WellPoint. Motley Fool newsletter services have recommended buying shares of UnitedHealth Group and WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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