Shares of Aetna Inc. skidded in early trading today, one day after the Hartford health insurer cut its profit forecast for the year.
Aetna said rising commercial medical costs and lower-than-expected Medicare revenue will reduce earnings to a range of $3.55 to $3.70 per share. Shares of the company lost $2.27, or 8.3 percent, to $25 from $27.27 premarket.
At 11 a.m., Aetna shares were down $2.18, or 8 percent, to $25.09.
Credit Suisse analyst Gregory Nersessian said he believes Aetna will have to make another reduction in its forecasts because the company needs to put more money into its reserves. He expects the company to earn $3.30 per share for the year.
“We believe Aetna’s reserve cushion is too thin and that it will ultimately need to boost reserves in order to account for the continued pressure on margins,” he said. Nersessian downgraded the stock to “Underperform” from “Neutral,” and trimmed his price target to $23 per share from $24.
Before Tuesday’s announcement, Aetna had projected a profit of $3.85 to $3.95 per share, and analysts expected 3.80 per share according to Thomson Reuters.
Scott Fidel, an analyst for Deutsche Bank, also lowered his profit estimates, but expects a profit of $3.60 per share, in range of Aetna’s new outlook. He said the company’s medical use trends haven’t increased. He noted that the company is no longer expecting medical expenses to come down despite its cost cutting efforts, which could reflect more conservatism from management.
Fidel said 20 cents per share of the guidance cut comes from greater of facility claims, and 15 cents per share comes from lower Medicare revenue due to lower risk scores. He kept a “buy” rating on the stock, and lowered his price target to $35 per share from $38. (AP)
