After reading Aetna Inc’s (NYSE:AET) most recent earnings announcement (30 September 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Aetna’s performance has been impacted by industry movements. In this article I briefly touch on my key findings. View our latest analysis for Aetna
How Well Did AET Perform?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique allows me to analyze many different companies in a uniform manner using the latest information. For Aetna, its latest trailing-twelve-month earnings is $1,799.0M, which, against the previous year’s figure, has declined by -26.65%. Given that these values are relatively nearsighted, I’ve calculated an annualized five-year value for AET’s earnings, which stands at $1,973.0M. This doesn’t look much better, as earnings seem to have consistently been diminishing over time.
Why is this? Well, let’s look at what’s going on with margins and whether the whole industry is facing the same headwind. Revenue growth in the past few years, has been positive, however, earnings growth has failed to keep up meaning Aetna has been ramping up its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US healthcare industry has been growing, albeit, at a muted single-digit rate of 8.11% over the past year, and a substantial 10.03% over the past five. This suggests that any uplift the industry is enjoying, Aetna has not been able to reap as much as its average peer.
What does this mean?
Though Aetna’s past data is helpful, it is only one aspect of my investment thesis. Typically companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and expansion. I recommend you continue to research Aetna to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for AET’s future growth? Take a look at our free research report of analyst consensus for AET’s outlook.