Aetna Earnings Wow Wall Street

The big health insurer emerges as an investor favorite.
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Aetna

(AET)

has given managed care investors a reason to feel good again.

The giant health insurer on Thursday posted second-quarter results that beat Wall Street estimates and raised its guidance for the current year to boot. Moreover, the company enjoyed improvement in two key areas -- customer enrollment and medical costs -- that have caused problems recently for rivals

UnitedHealth

(UNH) - Get Report

and

WellPoint

(WLP)

.

Aetna's second-quarter net income jumped 16% to $451 million, with earnings per share of 83 cents topping the consensus estimate by three cents. The company's new full-year guidance of $3.40 to $3.42 a share now sits comfortably ahead of Wall Street's $3.37 target as well.

During the latest quarter, Aetna managed to grow its health insurance base -- which now totals 15.8 million customers -- even as some competitors lost ground in a tough industry environment. Perhaps more importantly, Aetna kept its medical costs under control as well.

Aetna's commercial medical cost ratio -- a closely watched metric in the industry -- dropped to 80.5% from 81.1% a year ago, falling in the low end of the company's guidance range. Aetna's Medicare MCR showed even greater improvement, dropping from 89.5% to 88.2% and bringing the company-wide MCR down to 81.5% during the latest period.

For its part, Aetna saw plenty of reason to celebrate.

"Second-quarter results reflect our continued focus on disciplined underwriting and pricing, effective medical cost management, continued leverage of our expense base, as well as diversified medical membership growth," company officials stated on Thursday. "Aetna continues to produce solid financial results that reflect our disciplined strategy of delivering sustained profitable growth."

Of all the key metrics, in fact, only Aetna's revenue looked a bit weak. Second-quarter sales totaled $6.79 billion, up 9% from a year ago but still short of the $6.84 billion consensus estimate.

Overall, however, Aetna delivered upside in the areas that seem to matter most. Indeed, the company beat all of the targets -- including revenue -- set forth by Bear Stearns analyst John Rex just last week.

For starters, Aetna's 64,000 customer gains fully doubled Rex's expectations. The company's all-important commercial MCR came in slightly better than his projection, too. Moreover, defying Rex's forecast, the company's profits beat the consensus estimate.

Rex maintained a tepid peer-perform rating on Aetna's stock ahead of the company's latest update. His firm has non-investment banking ties to Aetna and holds a significant financial position in the company's debt.

Most other analysts remain on the sidelines with similar ratings on Aetna's stock. The shares continue to perform well, however, hovering near the high end of their broad 52-week range.

The stock rose 97 cents early Thursday to $51.62.