Glenview Capital Management's positions in the fourth quarter

Part 2
Glenview Capital Management's positions in the fourth quarter (Part 2 of 7)

Must know: Glenview Capital initiates a position in Aetna

Glenview Capital Management and Aetna

Glenview Capital’s new positions include Aetna, Inc. (AET), Comcast Corporation (CMCSA), and PHH Corporation (PHH). The fund exited Apple Inc. (AAPL) and Hospira, Inc. (HSP), and upped its stake in Monsanto (MON).

Following up on the trend of investing in health care stocks, Glenview Capital Management initiated a 0.89% position in U.S.’s third-largest insurance provider Aetna, Inc. (AET).

AETEnlarge GraphAetna offers a broad 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 health care management services, Medicare Advantage, and Medicare Supplement Plans; workers’ compensation administrative services; and health information technology products and services, such as Accountable Care Solutions (ACS).

The acquisition of Coventry Health in May of last year enhanced the scope and geographic breadth of Aetna’s Health Care products. The Coventry acquisition added medical membership, which enhanced Aetna’s diversified portfolio, increased its presence in government programs, which is an important element of its growth strategy, and improved the company’s positioning and reach in local geographies. In November 2013, Aetna entered into a definitive agreement to acquire InterGlobal group, a company that specializes in international private medical insurance for groups and individuals in the Middle East, Asia, Africa, and Europe.

Although Aetna missed earnings estimates in 4Q, the acquisition of Coventry boosted its fourth quarter profit. Aetna reported net income of $369 million, or $1 per share, up from $190 million, or $0.56 per share, a year earlier. The company ended 2013 with record medical membership of nearly 22.2 million, and it now projects medical membership to increase by approximately 50,000 at the end of the first quarter of 2014. Aetna expects to add at least 110,000 Medicare Advantage members in the first quarter of 2014 representing an excess of 11% sequential growth. Revenues for the fourth quarter of 2013 were $13.1 billion compared with $9.0 billion for the fourth quarter of 2012. For full-year 2013, operating revenues were $47.2 billion compared with $35.5 billion for 2012.

AET hedgeEnlarge GraphThe management said on the 4Q earnings call that “While we remain concerned about further cuts to the Medicare Advantage program in 2015 and the potential for member disruption, we continue to believe that the Medicare business can be a valuable part of our earnings profile over the long term.” Despite the challenges over the Affordable Care Act (ACA) fees and taxes and offsetting the rate pressures in the Medicare Advantage program, the company said it is committed to growing operating earnings and operating EPS this year. Aetna’s management said on the 4Q earnings call that further ACA-mandated cuts to Medicare Advantage and the prospects for additional Medicare rate pressures could make 2015 another challenging year.

In terms of health care exchanges, through the end of January, Aetna’s exchange enrollment totals approximately 135,000 paid members and is expected to grow over the remainder of the open enrollment period. Aetna said individual health insurance was a small portion of its business in 2013, representing 3% of its membership and operating revenues, and less than 1% of EBITDA.

Aetna CEO Mark Bertolini told CNBC in an interview in January that Obamacare has failed to attract the uninsured and that Aetna could be forced to opt out of the program. “Are they going to be double-digit [increases] or are we going to get beat up because they’re double-digit or are we just going to have to pull out of the program?” Bertolini asked in a “Squawk Box” interview from the World Economic Forum in Davos, Switzerland. The company will submit Obamacare rates for 2015 on May 15.

Major insurers such as Cigna (CI), Humana Inc. (HUM), and Aetna said they expect to lose money this year on the public-exchange business.

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