RPT-UPDATE 2-Aetna raises outlook, inks pharmacy deal with CVS

(Repeats story originally published late on Tuesday)

* Q2 net income rises 42 pct

* Sees 2010 EPS ex items $3.05-$3.15

* Aetna will retain PBM in 12-year deal with CVS (Adds CFO, analyst comment, details from results)

By Lewis Krauskopf

NEW YORK, July 27 (Reuters) - Health insurer Aetna Inc (AET.N) raised its full-year profit forecast on Tuesday, as it posted a 42 percent jump in its second-quarter net income and announced a long-term deal for CVS Caremark Corp (CVS.N) to manage some of its pharmacy benefits.

Under the 12-year contract, CVS will serve about 9.7 million Aetna pharmacy members and administer about $9.5 billion in annual drug spending. The No. 3 U.S. health insurer said it would retain ownership of the pharmacy benefit business.

Some investors have hoped other health insurers would follow WellPoint Inc (WLP.N), which sold its pharmacy benefit unit to Express Scripts Inc (ESRX.O) last year for $4.68 billion, in unloading their drug benefit units.

"I would think it would be a little bit of a disappointment by some who were looking for more of a full blown business sale," Collins Stewart analyst Brian Wright said of Aetna's move.

He said he did not believe such an outright sale was likely.

Aetna Chief Financial Officer Joseph Zubretsky said the company evaluated all strategic options before arriving at the contract with CVS. The contract will allow Aetna to gain access to CVS' retail pharmacy network and its purchasing scale, Zubretsky said.

"This was the best option available to us and they were the best company to partner with," Zubretsky said in an interview.

OUTLOOK

Aetna forecast 2010 earnings, excluding items, in a range of $3.05 to $3.15 per share -- up from $2.75 to $2.85 per share it forecast previously.

The forecast for the rest of the year seems "fair and reasonable and not including a preponderance of caution," Collins Stewart's Wright said.

Second-quarter net income rose to $491 million, or $1.14 per share, from $346.6 million, or 77 cents per share, a year earlier.

Excluding items, Aetna reported operating earnings of $1.05 per share, helped by 30 cents of benefit from positive claims reserves left over from prior periods.

That amounted to a 31-cent beat over the consensus estimate of 74 cents per share, according to Wright and analysts at Sanford Bernstein.

Revenue slipped about 1 percent to $8.55 billion, reflecting slightly lower membership in its commercial health plans.

Aetna spent 81.8 percent of premium revenue on medical costs in the quarter, down from 86.8 percent a year ago. Zubretsky said the insurer saw broadly lower use of medical services.

Aetna in June said its second-quarter operating earnings would exceed analysts' consensus expectations, which at the time was 68 cents per share.

It is the second major U.S. health insurer to report earnings this quarter, after UnitedHealth Group Inc (UNH.N) posted much higher-than-expected profit last week and raised its full-year forecast above Wall Street estimates. [ID:nN20214804]

Even as analysts expect a strong earnings season from health insurers, enthusiasm for the industry is expected to be tempered as investors question whether its performance will be sustainable under the new U.S. healthcare reform law.

WellPoint, the largest U.S. health insurer by membership, reports earnings on Wednesday. (Reporting by Lewis Krauskopf; Editing by Gary Hill and Dhara Ranasinghe)