Critical Survey: Aetna (NYSE:AET) vs. Universal American (UAM)

Universal American (NYSE: UAM) and Aetna (NYSE:AET) are both healthcare companies, but which is the superior business? We will compare the two companies based on the strength of their analyst recommendations, earnings, risk, profitability, institutional ownership, dividends and valuation.

Dividends

Aetna pays an annual dividend of $2.00 per share and has a dividend yield of 1.3%. Universal American does not pay a dividend. Aetna pays out 43.7% of its earnings in the form of a dividend.

Earnings and Valuation

This table compares Universal American and Aetna’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Universal American N/A N/A N/A ($0.86) -11.59
Aetna $62.20 billion 0.82 $6.06 billion $4.58 33.72

Aetna has higher revenue and earnings than Universal American. Universal American is trading at a lower price-to-earnings ratio than Aetna, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Universal American has a beta of 1.74, indicating that its stock price is 74% more volatile than the S&P 500. Comparatively, Aetna has a beta of 0.54, indicating that its stock price is 46% less volatile than the S&P 500.

Insider and Institutional Ownership

85.7% of Universal American shares are held by institutional investors. Comparatively, 91.7% of Aetna shares are held by institutional investors. 7.7% of Universal American shares are held by insiders. Comparatively, 0.9% of Aetna shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Analyst Ratings

This is a summary of current recommendations and price targets for Universal American and Aetna, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Universal American 0 3 0 0 2.00
Aetna 0 5 14 0 2.74

Universal American currently has a consensus target price of $10.00, indicating a potential upside of 0.30%. Aetna has a consensus target price of $159.38, indicating a potential upside of 3.19%. Given Aetna’s stronger consensus rating and higher possible upside, analysts plainly believe Aetna is more favorable than Universal American.

Profitability

This table compares Universal American and Aetna’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Universal American -5.12% -24.95% -8.23%
Aetna 2.52% 20.52% 5.35%

Summary

Aetna beats Universal American on 10 of the 13 factors compared between the two stocks.

About Universal American

Universal American Corp. provides an array of health insurance and managed care products and services to people covered by Medicare. The Company’s segments include Medicare Advantage, Management Services Organization (MSO), and Corporate & Other. The Medicare Advantage segment contains the operations of its initiatives in managed care for seniors. It operated 16 Medicare Shared Saving Program Accountable Care Organizations (ACOs) and two Next Generation ACOs, which included approximately 5,200 participating providers with approximately 221,800 assigned Medicare fee-for-service beneficiaries, as of December 31, 2016. The MSO segment supports its physician partnerships in the development of healthcare models, such as ACOs, with a range of capabilities and resources, including technology, analytics, clinical care coordination, regulatory compliance and program administration. It has developed a primary care physician alignment strategy, which is branded as The Healthy Collaboration.

About Aetna

Aetna Inc. is a diversified healthcare benefits company. The Company operates through three segments: Health Care, Group Insurance and Large Case Pensions. It offers a range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, medical management capabilities, Medicaid healthcare management services, Medicare Advantage and Medicare Supplement plans, workers’ compensation administrative services and health information technology (HIT) products and services. The Health Care segment consists of medical, pharmacy benefit management services, dental, behavioral health and vision plans offered on both an Insured basis and an employer-funded basis, and emerging businesses products and services. The Group Insurance segment includes group life insurance and group disability products. Its products are offered on an Insured basis.

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