Our view on Aetna Inc. (AET)
02-13-07: Aetna Inc. (AET) – Our long term view on AET is bullish. We actually bought AET last August when the stock tumbled because AET warned of lower than expected guidance and earnings. We were fortunate as the stock was trading in the low 30s for a few days and was just too cheap to ignore. We remain a holder of AET today as we believed this stock is still undervalued.
Overall, we like the HMO sector. In our view, we all need healthcare and despite the rising cost, it is something we need to have. The company appears to be doing a decent job of growing in new markets and targeting new customers.
We see the slower than expected growth as a temporary setback. Given ample time, we believed AET will be able to deliver above average return. Through share buybacks, AET share should be able to maintain its current level while the company executes its long term strategy. If AET is unable to successfully grow its membership organically, we see AET acquiring smaller rivals to jumpstart growth. Another possibility is AET could become a takeover target if the company is unable to grow on its own.
While the latest quarterly report was a disappointment (AET only grew only 14 percent year over year), we have decided to stick with AET and using the decline as opportunity to add to our position. If AET would fall below $40 per share, we would be pulling the buy trigger.
