Goldman Increases Estimates on Aetna (AET)

Goldman Sachs is out with an analyst note this morning, where they reiterated their Neutral rating on shares of Aetna Inc. AET; they did not provide a price target. GS analysts cited day 3 of their annual Healthcare Conference in Los Angeles, where Aetna CFO Joe Zubretsky was quite positive on the company. Goldman noted, “Ahead of its presentation, Aetna issued an 8-K stating that 2Q earnings are expected to be “greater” than the current $0.68 Street consensus, driven by “better-than-projected” underwriting results, driven by prior quarter (1Q) favorable claims reserve development. Aetna was not prepared to provide further guidance but indicated it would update its full- year 2010 outlook when it reports 2Q earnings on July 28. We raise our 2Q EPS by $0.17, to $0.80, and our 2010 EPS by $0.20, to $3.15. However, we leave our 2011 ($3.25) and 2012 ($3.60) unchanged pending better visibility on potential impact from the minimum loss ratio regulations.” They added, “Aetna’s announcement was unsurprising in light of strong underwriting results so far this year across the sector reflecting (1) “catch up” pricing from the turn in the industry cycle as well as the spike in underlying cost trend last year and (2) moderation in cost trends so far this year, reflecting in part the abnormally flu incidence this year. Our takeaway from other presentations implies to us we will likely see directionally similar trends from other managed care companies in 2Q and full-year 2010 earnings.” Goldman Sachs closed by saying, “As with other managed care companies, Aetna is cautiously optimistic that the minimum loss ratio (MLR) regulations under development by the NAIC working group will prove “manageable” in their final form, given that the NAIC group appears to be seeking a balance between strict implementation of the MLR provisions versus potential coverage disruption and reduction of competitive capacity (which could result from an overly onerous interpretation of the statute.”