Trends Looking Up at Aetna - TheStreet



could be even healthier than some investors think.

The giant health insurer will officially update its condition during its annual investor day on Friday. But Goldman Sachs analyst Matthew Borsch -- known for his otherwise cautious stand on the group -- is offering a bright prognosis already.

Borsch believes that Aetna is on track to meet his Street-high 2005 earnings estimate of $4.65 a share. And he predicts that the company may raise its own guidance before the week draws to a close.

"Last year, Aetna significantly boosted its earnings guidance ahead of its investor day," he reminded. "We think a boost to guidance this year is 50% likely but don't expect it would be in the magnitude of last year's boost."

Still, Borsch expects Aetna to grow profits this year by some 33% even under his "base-case" scenario. Moreover, he believes the company's profits could jump by nearly 40% -- and its stock could actually double -- if things go better than he predicts.

To be sure, Aetna delivered some nice surprises last year.

"Aetna was arguably a key instigator of increased price competition in several markets," Borsch stated, "as it pursued a risky -- but apparently successful -- strategy of deliberately pricing below medical cost trend to spur market share gains."

Borsch expects that competitive environment to keep heating up, with Aetna again performing well, as the year goes on. Indeed, he offers a number of bullish predictions. He says that Aetna could soon increase its enrollment projection for the first quarter and offer more details on its goals for the entire year. He also believes the company will continue to lower its operating costs -- even as it grows revenue -- all the way through 2007. In addition, he sees new opportunities as Aetna expands its Medicare and consumer-driven health plans.

Only under a worst-case scenario, including a major cyclical downturn, does Borsch see the company's earnings actually slowing down. Thus, he continues to maintain his outperform rating on the company's shares.

The stock, which has gained some 75% over the last year, slipped 67 cents to $75 on Wednesday despite that bullish outlook.

Moving On

Elsewhere in the health care arena, two struggling companies fared better.

Shares of

Tenet Healthcare

(THC) - Get Report

inched up 7 cents to $10.53 after the company revealed a new hospital-level management change. And

Bradley Pharmaceuticals


jumped 57 cents to $10.28 despite news of a departing board member.

Tenet said that Candace Markwith -- the former CEO of embattled Redding Medical Center in Redding, Calif. -- is assuming the top post at one of its most successful California hospitals. Markwith is set to become interim CEO of Sierra Vista Regional Medical Center in San Luis Obispo next week.

Markwith said she feels "thrilled and challenged" by the opportunity.

"I am committed to quality and integrity in health care," she said, "and I look forward to bringing new ideas and new energy to the table."

Markwith last served as CEO of Redding, which ranked as one of Tenet's most profitable hospitals before it was exposed for allegedly performing unnecessary heart surgeries. Markwith attempted to restore the hospital's reputation but found herself instead presiding over its sale after the government threatened to bar it from the Medicare program. Tenet has since paid out $395 million to victims of the hospital's alleged scheme.

Markwith will now take over at yet another Tenet-owned hospital in California -- a tough market where the company has been shedding facilities -- as current Sierra Vista CEO Gary Stokes relocates to the company's new home base of Texas.

Departing Director

Meanwhile, the former chairman of Bradley's audit committee is moving on as well. Bradley announced that Michael Bernstein will leave the company's board this month after just over two years of service.

Bradley recently became the target of an informal probe by the

Securities and Exchange Commission

. The company has since delayed the release of audited financial statements.

Bernstein insisted on Wednesday that his departure has nothing to do with the company's accounting problems, however.

"I had previously planned to remain a director only through March 16, 2005 -- the anticipated filing date of Bradley's annual report on Form 10-K for 2004 -- but have now resigned prior to that filing due to its delay announced last week," Bernstein said. "My decision does not reflect in any way upon Bradley."

Indeed, Bernstein expressed confidence in Bradley when joining the company's audit committee in 2003. He also stressed the importance of a company's culture at that time.

"Is management straightforward and forthright?" he said in the September 2003

Journal of Accountancy

. "I suspect a problem if I have difficulty getting candid responses."