Aetna (AET) has recovered nicely since the depths of the credit crisis, rising over 150% off its lows. The stock obviously did not deserve the valuation the market was placing on it during the crisis and the stock reaction since then shows that. The company should continue to benefit as the economy recovers, employers hire more workers and in turn Aetna grows its medical membership base. However, it seems like the market has basically baked these gains into the stock already. A 9x trailing multiple is about right for a stock like Aetna that is not going to be a game changer but will continue to grow at the pace of employment. The uncertainty about the impact of the upcoming reform changes to healthcare also adds to the risk of the stock. Below are the valuation metrics and top holders of the stock.
Aetna's trailing 5 year valuation metrics suggest that the stock is slightly undervalued as all three of the metrics are slightly below their respective 5 year averages. Aetna's current P/B ratio is 1.6 and it has averaged 1.7 over the past five years with a high of 2.9 and low of 1.1. Aetna's current P/S ratio is 0.5 and it has averaged 0.6 over the past five years with a high of 1.1 and low of 0.3. Aetna's current P/E ratio is 8.8 and it has averaged 10.6 over the past five years with a high of 16.6 and low of 7.3.
The consensus price target for the analysts who follow Aetna is $53. That is upside of 17% from today's stock price of $45.70 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Here is the forward P/E valuation breakdown: Aetna is currently trading at about $46 a share with analysts expecting EPS of $5.63 next year, an earnings increase of 10% year over year, for a forward P/E ratio of 8.1. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. UnitedHealth (UNH) is currently trading at about $53 a share with analysts expecting EPS of $5.43 next year, an earnings increase of 13% year over year, for a forward P/E ratio of 9.8. WellPoint (WLP) is currently trading at about $64 a share with analysts expecting EPS of $8.51 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 7.5. Humana (HUM) is currently trading at about $86 a share with analysts expecting EPS of $8.85 next year, an earnings increase of 11% year over year, for a forward P/E ratio of 9.7. The mean forward P/E of Aetna's competitors is 9 which suggests that Aetna is fairly valued relative to its publicly traded competitors.
According to the DCF model provided by Dividend Kings, Aetna is worth $40 a share versus its current stock price of $45.7 a share. This suggests that the stock is fairly valued.
The top two funds that own Aetna are American Funds Washington Mutual A, which owns 7.4 million shares or 2.03% of the shares outstanding, and American Funds Growth Fund of Amer A, which owns 6.4 million shares or 1.76% of the shares outstanding. The top two institutions that own Aetna are State Street Corp, which owns 23.2 million shares or 6.41% of the shares outstanding, and Capital World Investors, which owns 20.5 million shares or 5.66% of the shares outstanding.
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