Heath insurer Aetna Inc. raised its 2011 profit target after posting first-quarter results well above estimates on lower-than-expected medical costs, sending its shares up 8.5 percent.
The results from the No. 3 U.S. health insurer, which also announced a $600 million deal for a third-party health plan administrator, come after rivals UnitedHealth Group Inc. and WellPoint Inc. also boosted their full-year profit forecasts after strong quarters.
But the higher 2011 forecast from Aetna particularly impressed analysts after the company had already set out what some investors perceived as an aggressive profit target.
"While all peers are reporting strong beats, the investment controversy on Aetna is particularly strong given the company had already guided significantly higher than its peers," Sanford Bernstein analyst Ana Gupte said in a research note.
Aetna's report continued to fuel momentum for health insurers, whose shares have far outpaced the broader market as investors breathe easier about the industry's prospects following last year's healthcare overhaul.
The company's first-quarter net income rose to $586 million, or $1.50 per share, from $562.6 million, or $1.28 per share, a year earlier.
Excluding certain items, earnings of $1.43 per share topped analysts average estimate of 97 cents, according to Goldman Sachs analysts.
Revenue fell about 3 percent to $8.39 billion.
Aetna spent 79.2 percent of premium revenue on medical costs, down from 82.5 percent a year ago. The company cited a big boost from untapped claims reserves set aside for prior periods.
The industry has benefited from low medical costs as Americans avoid procedures to save money during the shaky economy and as winter storms kept use of health services low.
Aetna forecast 2011 earnings, excluding items, of $4.20 to $4.30 per share, compared with its expectation in February of $3.70 to $3.80. Analysts were looking for $3.75.
The new forecast equates to a profit increase of 14 percent to about 17 percent expected for this year.
"As with its peers, guidance appears to leave room for further upside in the expectations as the year progresses," Citadel Securities analyst Brian Wright said.
Aetna also said it would buy Prodigy Health Group, a third-party administrator of self-funded health plans, for $600 million. New York-based Prodigy, which operates in 15 states, has about 600,000 medical members. Its majority owner is One Equity Partners.
Aetna shares rose 8.5 percent to $43.21 in premarket trading. The shares had been up 30 percent this year through Wednesday.
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