* Q4 net income falls 57 percent
* Q4 EPS of 96 cents ex items, vs 94-cent analyst estimate
* Sees 2009 EPS $3.85-$3.95 vs estimate of $3.88
* Aetna shares rise 3 percent (Recasts, adds CFO, analyst comments)
By Lewis Krauskopf
NEW YORK, Feb 12 (Reuters) - Health insurer Aetna Inc AET.N posted a 57 percent drop in net income on investment losses and charges, but a lower-than-expected tax rate helped drive operating results slightly above analysts’ targets.
The No. 3 U.S. health insurer forecast operating profit growth of 12 to 14 percent this year, in line with analyst targets, as it expects to add more than 1.2 million members in the first quarter.
Aetna shares rose 3 percent, bucking declines for the broader markets.
“The beat on the bottom line is good,” Edward Jones analyst Aaron Vaughn said. “All in all, I think it was a good quarter.”
Aetna’s results close a fourth-quarter reporting season for major health insurers that has lacked any huge negative surprises, encouraging investors that stability may be returning to a sector whose shares were hammered in 2008.
However, Aetna shares have performed better than most rivals over the past year, as it stood apart by avoiding major reductions to its 2008 earnings forecast.
Aetna Chief Financial Officer Joseph Zubretsky said the company is growing its membership faster than the overall industry at a profitable rate, and noted that 12 to 14 percent profit growth “in this environment is pretty significant.”
“The main message is that our value proposition is resonating in the marketplace,” Zubretsky said in an interview. “Now it’s all about following through and putting up good numbers. I think the market will ultimately recognize the value of that.”
Aetna’s net income fell to $194.7 million, or 42 cents per share, from $448.4 million, or 87 cents per share, a year earlier. The latest results included 42 cents a share in net realized capital losses, as well as charges for severance payments and a probe into out-of-network medical services.
Excluding those items, earnings were 96 cents per share, 2 cents ahead of the analysts’ average forecast, according to Reuters Estimates. Several analysts said lower-than-expected taxes helped results.
Revenue at the Hartford, Connecticut-based company rose 8.7 percent to $7.76 billion.
Aetna’s health plan membership was 17.7 million at year-end, for annual growth of about 5 percent. It expects to end 2009 with about 19 million members, helped by winning accounts with Bank of America (BAC.N) and Home Depot (HD.N).
Aetna is bracing for a loss of members in 2009 as employers lay off workers because of the weak economy, but it expects to offset the losses with contract wins later in the year.
David Heupel, a portfolio manager with Thrivent Investment Management, said Aetna offers a more innovative product, seems to be pricing its plans fairly reasonably, while its service is recognized as a leader in the industry.
“They’ve been taking share for a number of years now,” Heupel said.
Aetna’s medical benefit ratio, a key measure of the amount of premiums spent on medical claims, deteriorated to 80.6 percent in the fourth quarter from 79.2 percent a year earlier for its commercial segment that serves employers. Analysts at Oppenheimer & Co had expected 80.5 percent.
Aetna projected 2009 operating earnings of $3.85 to $3.95 per share. Analysts are looking for $3.88. The outlook equates to growth of about 12 percent to 14 percent, consistent with Aetna’s previous forecast.
Aetna shares were up $1.01 at $33.23 in midday trading on the New York Stock Exchange. After a rough 2008 for HMO stocks, Aetna shares had risen 13 percent this year through Wednesday, higher than a 9 percent climb for the S&P Managed Health Care index .GSPHMO. (Editing by Lisa Von Ahn and Gunna Dickson)