Earnings Preview: Aetna reports on 3Q Thursday

Aetna Inc. follows a tough lead on Thursday when it becomes the second major health insurer to report third-quarter results.

WHAT TO WATCH FOR: Aetna competitor UnitedHealth Group Inc., the largest U.S. health insurer, said last week its third-quarter earnings jumped 23 percent, and it raised its 2012 earnings forecast for the third time this year.

UnitedHealth said its results were helped, in part, by a $390 million benefit it recorded because claims left over from earlier periods came in lower than expected, which freed up money held in reserve.

Analysts will be looking to see whether Hartford, Conn.-based Aetna records a similar benefit. They also will want to hear what Aetna leaders have to say about 2013.

Insurers usually start giving analysts a sense for what to expect in the new year when they report third-quarter numbers. UnitedHealth, for instance, told analysts it expects growth next year, but high unemployment rates and tight government budgets could squeeze its private insurance and Medicare and Medicaid businesses.

Investors also may hear more about the major acquisition Aetna announced in August. The insurer plans to spend $5.7 billion to buy Coventry Health Care Inc., a Medicare and Medicaid coverage provider.

The deal will broaden Aetna's Medicaid business a few months before millions of people are expected to become eligible for the state- and federally funded program for the needy and disabled under President Barack Obama's massive health care overhaul.

It also will boost the company's portion of business from the federally funded Medicare program, which covers seniors over age 65 and those who are disabled, at a time when interest in these plans is growing in part because baby boomers are aging.

WHY IT MATTERS: Aetna is the third-largest health insurer, trailing only UnitedHealth and WellPoint Inc. in enrollment. Aetna provides health insurance for about 18 million people. It also sells dental, group life and disability coverage.

Its performance, along with UnitedHealth's report from last week, will give analysts a better sense for any trends that may be forming in the managed care sector.

WHAT'S EXPECTED: Analysts expect, on average, earnings of $1.33 per share on $8.83 billion in revenue, according to FactSet.

LAST YEAR'S QUARTER: Aetna earned $490.4 million, or $1.30 per share, as revenue excluding capital gains fell 1 percent to $8.4 billion. A charge for an early retirement program hurt the insurer's performance. But Aetna also saw a $117million gain in last year's third quarter because leftover claims mostly from the second quarter came in lower than expected.