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Will Aetna (AET) Pull a Surprise this Earnings Season?

Aetna Inc. AET is scheduled to report first-quarter 2017 results on May 2, before the opening bell.

Last quarter, Aetna surpassed the Zacks Consensus Estimate by 12.41%. Let’s see how things are shaping up for this announcement.

Q1 Flashback

During the quarter, the company’s deal with Humana Inc. HUM went bust on regulatory concerns.

The company’s results will continue to suffer from ongoing losses in its Individual Commercial Affordable Care Act-compliant products sold on public exchanges. Consequently, the company has made changes to its footprint to reduce its risk exposure to these products in 2017. It projects first-quarter Individual Commercial membership (mostly on-exchange) to decline from approximately 965,000 at year-end 2016 to 240,000. Its commercial membership will also feel the strain as employers prefer to stay self-insured.

Results will, however, reflect premium growth in the company’s Medicare business. This business continues to be a meaningful source of growth for Aetna and performed very well in 2016. The trend is expected to continue in the first quarter as well. In the last quarter earnings conference call, the company said that it had another strong Medicare Advantage annual election period and projected total Medicare medical membership to grow by 120,000 in the first quarter of 2017, including 12% growth in its individual Medicare Advantage membership.

The company’s focus on managing costs will keep a check on its operating expenses. As a result of these cost control initiatives, adjusted operating expense ratio was 18.1% in 2016, reflecting an 80 basis point improvement year over year.

Aetna Inc. Price and EPS Surprise


Aetna Inc. Price and EPS Surprise | Aetna Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Aetna is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Aetna has an Earning ESP of -0.42%. This is because the Most Accurate estimate stands at a $2.35 per share, which is below the Zacks Consensus Estimate of $2.36.  You can uncover the best stocks to buy or sell before they’re reported with our  Earnings ESP Filter.

Zacks Rank: Aetna carries a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, the company's negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

UGI Corporation UGI is expected to report first-quarter 2017 earnings results on May 1. The company has an Earnings ESP of +1.56% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Eaton Corporation ETN has an Earnings ESP of +2.30% and a Zacks Rank #2 (Buy). The company is expected to report first-quarter earnings results on May 2.

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UGI Corporation (UGI): Free Stock Analysis Report
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Humana Inc. (HUM): Free Stock Analysis Report
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