CIGNA to Buy Back Notes - Analyst Blog

Health insurer CIGNA Corp. (CI) has announced the offering of $250 million of 4.375% senior notes due 2020. Interest on the notes is payable on June 15 and December 15 of each year, beginning June 15, 2011.

CIGNA intends to use a portion of the net proceeds from the notes issue to buy back a part or whole of its 8.5% of $350 million senior notes due in 2019. The company announced to buy back the notes concurrent with the notes issue.

CIGNA's debt-to-capital ratio stood at 27.5% as of September 30, 2010, which is on the higher end of management's target range of 20%–30%. Following the issue and repurchase of notes, the debt-to-capital ratio is expected to remain almost unchanged at 27%.

CIGNA's debt carries a rating of “BBB” from the rating agency Standard & Poor's. The rating stands at a notch higher than the lowest investment grade. The “BBB” debt rating reflects the company's vulnerability to any adverse change in financial and economic condition that could affect its debt commitment.

During the third quarter 2010, CIGNA reported core earnings of $1.10 per share, which came in above the Zacks Consensus Estimate of $1.06. The insurer earned $1.13 per share last year. Better-than-expected results came in due to improved contribution from Health Care, Disability & Life and International segments.

CIGNA has reported favorable results for the first nine months of 2010. However, concerns regarding the state of the global economy and the impact of the US Health Care Reform Act persist. But we note that CIGNA is more "reform resistant" than other health insurers due to its relatively low enrollment in Medicare Advantage and individual or small group insurance products, the two product lines that are perceived as vulnerable to an overhaul push.

Also, a strong capital position, diverse revenue operations and continual share repurchases bode well for the company. We maintain an Outperform rating on the shares, which carry a Zacks #2 Rank, translating into a Buy recommendation over the near term (1−3 months) and indicating a slight upward directional pressure in the near term.

Headquartered in Philadelphia, CIGNA competes with other players such as Aetna Inc. (AET), UnitedHealth Group Inc. (UNH), and WellPoint Inc. (WLP)