Shares of Aetna Inc. shot up 15 percent in pre-market trading Friday after the health insurer announced the highest dividend in the managed care sector and predicted its 2011 profit will be much bigger than what Wall Street expects.
The Hartford, Conn., company also said its fourth-quarter net income rose 30 percent due in part to better pricing and a slowdown in health care use that also has helped its competitors in the last few months of 2010.
Aetna will now pay a 15-cent quarterly dividend on April 29 to shareholders as of April 14. Big health insurers normally offer token dividends like the 4-cent annual one Aetna paid Nov. 30, but that started to change last year when competitor UnitedHealth Group Inc. announced a quarterly dividend of 12.5 cents per share.
The steady cash flow from larger dividends can make a company's stock more attractive to investors. The new dividend should turn into a "meaningful positive catalyst" for Aetna shares, Bernstein analyst Ana Gupte said in a research note. She noted that it should attract investment from dividend-only funds.
Looking ahead, the company forecast a 2011 operating profit between $3.70 and $3.80 per share, much higher than the average analyst expectation of $3.27 per share, according to FactSet,.
Analysts have said insurers will be squeezed next year by health care use that is expected to return to normal levels, low interest rates and a new health care overhaul mandate regulating the percentage of premiums they spend on care.
Several analysts said in Friday morning notes they were surprised by Aetna's 2011 forecast.
Aetna shares leaped 15 percent, or $4.92, to $38.19 before the opening bell.
For the fourth quarter, Aetna earned $215.6 million, or 53 cents per share. That was up from $165.9 million, or 38 cents per share, in the same period last year. Revenue was down 2 percent to $8.54 billion.
The company reported operating profit, which excludes one-time items, of 63 cents per share. Analysts forecast earnings of 62 cents per share on $8.32 billion in revenue.
Aetna said the profit boost was "largely the result of higher commercial underwriting margins driven by management actions to appropriately price the business," along with lower health care use. Aetna had struggled through 2009 with medical costs that climbed higher than the company expected when it set prices for that year. Company leaders said then they repriced a significant portion of Aetna's commercial insurance business.
Aetna is the third largest commercial health insurer based on enrollment, trailing WellPoint and UnitedHealth. Those insurers and Cigna Corp. have all seen a slowdown in health care use over the last part of 2010.
Industry observers have said use slowed due to a mild flu season that followed the swine flu outbreak of 2009 and because consumers tend to cut back on care during a struggling or recovering economy.
For the full year, the company earned $1.77 billion, or $4.18 per share, up from $1.28 billion, or $2.84 per share. Revenue fell to $34.25 billion from $34.76 billion.
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