Insurer Majors Eye Acquisition - Analyst Blog
14 Novembre 2011 - 2:00PM
Zacks
Media reports revealed that XL Health Corp. is being chased by
WellPoint Inc. (WLP), UnitedHealth Group
Inc. (UNH) and Aetna Inc. (AET), as each
of these big insurers are eyeing the company’s Medicare Advantage
business, which is expected to grow overwhelmingly over the
next five years.
It is also reported that the
purchase consideration may range between $1.5 billion and $2
billion for Matlin Patterson Global Advisers owned XLHealth Corp.,
a provider of managed care for chronically ill Medicare
members.
The acquisition of XLHealth Corp.
will follow the similar strategic acquisition of
HealthSpring Inc. (HS) by Cigna
Corp. (CI) for $3.8 billion in late October.
Rationale of the
Acquisition
A Medicare Advantage Plan is
offered by private health insurance companies for the elderly and
disabled.
The first baby boomers will hit
their retirement ages soon and will opt for
managed care plans. Health Insurers will thus look to acquire
providers of managed care plans which in turn will help them
generate higher revenues.
Also, according to reports,
managed-care plans for Medicare, the U.S. health program for the
elderly and disabled will generate incremental revenue of $10
billion by 2015, which would justify such acquisitions.
The companies earlier have
acquired providers of chronically ill coverage.
Brentwood-based Inspiris was acquired by UnitedHealth in
March 2011 while CareMore Health Group was purchased by WellPoint
in June 2011.
Capital Position of
Prospective Acquirers
UnitedHealth Group ended the third
quarter with cash and cash equivalents of $13.7 billion, almost a
50% increase over 2010 level. Year to date cash from operation
totaled $7.4 billion, a 53% year-over -year increase.
Aetna exited the third quarter with
cash and cash equivalents of $1.9 billion, a 5% increase over the
2010 level. Year- to -date, cash from operations totaled $2
billion, a whopping year-over- year increase of 138%.
WellPoint exited the quarter with
cash and cash equivalents of $2.5 billion, an increase of 39% from
2010 end level. Year-to-date, operating cash flows totaled $3.3
billion, up
300% year over year.
The companies’ solid
capital position will enable it to fund the acquisition once it
materializes.
Earnings Recap of
Prospective Acquirers
Aetna has posted third quarter 2011
earnings of $1.40 per share, significantly ahead of the Zacks
Consensus Estimate of $1.14 as well as the year-ago quarter’s
earnings of $1.00.
Declining utilization, strong
performance across all the product lines, disciplined pricing and
medical cost trends accounted for the earnings upside.
WellPoint reported third-quarter
adjusted income of $1.77 per share, striding ahead of the Zacks Consensus
Estimate of $1.69. Results were also 1.7% higher than $1.74
earned in the year-ago quarter.
The quarter benefited from improved
membership growth and a decline in selling, general and
administrative expenses.
UnitedHealth reporting third
quarter earnings of $1.17 per share, higher than the Zacks
Consensus estimate of $1.12. Earnings also compared favorably with
$1.14 reported in the prior-year quarter.
The out-performance was driven by
strong revenue growth from UnitedHealthcare, as well as from the
Optum businesses, partially offset by higher medical cost.
Zacks Rank
The quantitative Zacks #1 Rank
(short-term Strong Buy rating) for Aetna Inc. indicates upward
pressure on the stock over the near term.
The quantitative Zacks #2 Rank
(short-term Buy rating) for WellPoint indicates upward pressure on
the stock over the near term.
The quantitative Zacks #3 Rank
(short-term Hold rating) for UnitheHealth indicates no clear
directional pressure on the stock over the near term.
AETNA INC-NEW (AET): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
HEALTHSPRING IN (HS): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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