Cigna: Updated Research Report - Analyst Blog

On May 16, 2014, we issued an updated research report on U.S. health insurer Cigna Corp. CI. The company's first-quarter 2014 net operating earnings came in at $1.83 per share, handily beating the Zacks Consensus Estimate of $1.53.

Earnings were also up 6.4% year over year. Cigna's better-than-expected earnings came from strong contribution from all its business segments.

Cigna is a niche player in the health insurance market with a well diversified business profile with reach in different markets.

Cigna has also gained significant presence in the fast growing Medicare Advantage market with the acquisition of HealthSpring. Though the company faces headwinds from medicare reimbursement cuts in 2014, long-term growth is expected as millions of retirees (baby boomers) create huge demand for MA insurance.

The company also has significant overseas business which is generating strong earnings. Cigna expects its expansion in the international markets to contribute meaningfully to its long-term growth.    
   
Also, Cigna continues to strengthen its physician partnerships through more than 66 Collaborative Accountable Care initiatives.

Cigna's strong balance sheet and high levels of free cash flow give it enough flexibility to deliver additional shareholder value.  

On the flip side, Cigna is expected to witness a rise in medical costs as members increase utilization of health care services. While low utilization over the past three years have driven the bottom line, an increase in utilization this year will erode margins to some extent.

Also, Cigna's exposure to commercial mortgage loans and real estate loans continue to bother us as these problem loans may create earnings volatility.

Following the company's strong first-quarter earnings release, Cigna has been witnessing rising earnings estimates. Over the last 30 days, the Zacks Consensus Estimate for 2014 moved up by 2.0% to $7.30 as 10 out of 13 estimates moved north. The same for 2015 rose 1.1% to $8.05 as 8 of 13 estimates were raised over the same time frame.

Zacks Rank & Other Stocks

While Cigna currently holds a Zacks Rank #3 (Hold), other better ranked players Horace Mann Educators Corp. HMN and Old Republic International Corp. ORI with a Zacks Rank #1 (Strong Buy) as well as Prudential plc. PUK with a Zacks Rank #2 (Buy) are worth considering.

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CIGNA CORP CI: Free Stock Analysis Report
 
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