Aetna Inc.AET

Morningstar Rating

Stock Research and Analysis

by Matthew Coffina

Although we think Aetna has some sustainable competitive advantages, it lacks the scale to seriously challenge industry leaders WellPoint WLP and UnitedHealth UNH. Furthermore, the company's long-term fate may be out of its hands, as it will depend Read more

Bulls Say

Aetna's scale gives it an edge over smaller rivals, as it can negotiate better prices for care and spread its fixed costs over more customers.

Aetna can cross-sell its specialty products, like pharmacy benefits management, to its existing health insurance customers at little incremental cost.

Continued merger-and-acquisition activity could help Aetna compete with market leaders like independent Blue Cross/Blue Shield plans, WellPoint, and UnitedHealth.

A focus on fee-based business lowers Aetna's exposure to accelerating medical cost inflation. Read more

Bears Say

Purchasers of health insurance are extremely price-sensitive. Aetna may lack the scale in regional markets to negotiate the best prices with health-care providers.

Major health-care policy reform could happen in 2009. The more drastic reform proposals would fundamentally undermine Aetna's business model.

Strong underwriting is essential to Aetna's profitability. If the firm can't raise premiums in line with medical costs, margins will deteriorate.

With consumers demanding access to more and better health care, and employers and regulators pushing for cost containment, managed-care companies could get caught in the middle. Read more

Strategy

Aetna's size limits its ability to compete with industry leaders on price. Instead, Aetna's strategy is to differentiate its product by targeting underserved populations and providing innovative, integrated Read more

Management

We are impressed by Aetna's turnaround during the last eight years; the company exited noncore and unprofitable businesses, rebuilt operating margins, and saw its share price increase more than fourfold. On the other hand, we were disappointed by the Read more

Profile

Aetna provides risk-based health insurance and non-risk-based benefits plan management services to approximately 6.4 million and 12.7 million customers, respectively. Other Read more

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Weekly Market Wrap: 2/5/2010
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