<<But, one of the cheaper stocks around may soon enjoy a high-profile catalyst.
The company: Aetna (NYSE: AET - Quotes, News, Boards), which closed Monday at $55.50.
The catalyst: Former Citicorp honcho Jamie Dimon.
You see, Aetna is the largest managed care company in the country. And it has a financial services company that specializes in annuities, mutual funds and related services.
Okay, not exactly a B2B, Linux or CDMA play.
However, this stock is cheap. Real cheap, according to the poor money managers are stuck in it.
Why, even the folks who run Aetna seem to agree. Back in December, the company announced that it would buy back $1 billion worth of its shares and it is considering a number of moves that could boost its stock price, including a spinoff or issuance of a tracking stock for one of its operations.
Aetna?s investors are quietly pushing for a breakup of the company behind the scenes.
They argue that if you bust the company into two pieces, the sum of the parts would far exceed the current value of the whole thing.
They may even be right, too.
Let?s look at the numbers, fans.
Aetna?s current market capitalization is about $8.3 billion.
To underscore how low this is, investors point to United Healthcare (NYSE: UNH - Quotes, News, Boards), which competes with Aetna U.S. Healthcare, the company?s managed care operation. United has a market cap of $9.1 billion, or about 10% higher than Aetna?s.
Yet, ?Aetna has 40% more covered lives in HMOs than United,? points out one money manager.
Now, this still doesn?t account for Aetna Financial Services and Aetna International.
Okay, granted Aetna U.S. Healthcare is the largest part of the company, reporting third quarter operating earnings of $149 million, up 26% from the prior year.
But, the other two main businesses are no slouches, folks.
Aetna Financial Services, which markets annuities and mutual funds as well as retirement services such as 401 (k) programs, reported operating earnings of $58 million, up 22%.
Aetna International, which mostly sells life insurance, health and financial retirement services products in 16 countries, earned $46 million, up 8% from the prior year.
So, shareholders are pushing for the company to break into two?A health company and a wealth company. Such a move would roughly double the value of the shares, they argue.
And according to one source, ?large shareholders are lobbying for Jamie Dimon? to head up the wealth portion. ?I hear he would be interested.?
It certainly would make sense. Dimon has said publicly that he?s looking to get back to work. And taking over a sleepy, relatively small financial services company at the dawn of the industry?s deregulation would be an ideal opportunity to become a major player.
Keep in mind that this was the success blueprint for his idol, Sandy Weill, who in the 1980s took control of little-known Commercial Credit and through expansion and acquisitions turned it into what became Travelers, before it merged with Citicorp to create Citigroup (NYSE: C - Quotes, News, Boards).
Even without a deal, the shares are cheap, argue Wall Streeters. Indeed, Bear Stearns noted in a report dated December 27 that the stock trades at nine times its 2000 estimate even though Bear expects Aetna's earnings to grow by 15% per year.
What's more, Aetna's peers are trading at about 13 times projected 2000 earnings, including United Health, Cigna (NYSE: CI - Quotes, News, Boards) and Wellpoint Health Networks (NYSE: WLP - Quotes, News, Boards).
Aetna is also trading at a 26% discount to its book value.
Bear's total valuation of the company: $82.
What would get its shares to move?
Certainly, an announcement that it is breaking up the company.
Also, an announcement that Dimon would head up the financial services arm.
However, the stock could also move soon once it receives a ruling from the Securities and Exchange Commission (SEC). The SEC is reviewing its filings from the last three years related to the accounting used for acquisitions and sales.
During that period, Aetna bought U.S. Healthcare for $8.9 billion, New York Life Insurance's health insurance unit for $1.1 billion and Prudential Insurance's health insurance unit for $1 billion. >> |
