Morgan Stanley lowering price tgt for Aetna (NYSE:AET) to $46 from $51, saying that given industry-wide continued medical trend deceleration, evidence of a stabilizing pricing environment and Aetna's announcement that its 2Q cost trends are not as high as it initially thought, they see near term upside in AET shares to $46.
Medical cost trends at Aetna are not further worsening, and in fact, may be improving -- a source of relief for Aetna, as well as the managed care group. That said, it is somewhat curious that Aetna is already seeing favorable medical cost experience relative to 2Q results since the rise in 2Q medical trend was owing largely to catastrophic claims, which take time to mature. While there is some risk that Aetna may not have priced accounts entering 2007 in order to fully rightsize its negative price-cost spread, firm thinks the issue was identified early enough for Aetna to at least lessen its negotiations off initial rates and improve its spread in 2007.
Reiterates Overweight.
Notablecalls: Not actionable short-term, however like it as a swing trade on the long side. The stock has bounced nicely from the August lows and believe some upside is still there. Would not hold below SMA(100)/$38, though.
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