) is strongly poised to record earnings growth since it has
undertaken several strategic investments for future growth.
However, the volatility associated with its discontinued
guaranteed minimum income benefit (GMIB) business and its pension
burden keeps us on the sidelines. Moreover, a changing health
insurance marketplace is a matter of concern. Thus we retain our
Neutral recommendation on the company.
CIGNA forayed into the Medicare Advantage market by the
acquisition of HealthSpring Inc.
During September 2012, CIGNA Corp. acquired Great American
Supplemental Benefits from
American Financial Group, Inc.
). The acquisition will expand Cigna's product offerings and will
be immediately accretive to its earnings.
CIGNA has also made accelerated investments in technology
infrastructure, which is expected to yield efficiency gains in the
second half of 2012, in 2013 and beyond.
The insurance giant has been witnessing an increase in
membership. For the past one and a half years, the company has
witnessed a continued improvement in demand for ASO products as
well as incentive and engagement-based programs. We expect the
uptrend to continue in the near term as the growth in medical
premium taxes influences more employers to consider self
CIGNA is aggressively expanding its international business,
which has historically delivered double-digit revenue growth, with
very attractive margins and capital efficiency. For 2012,
management expects International earnings growth of 19%-28% over
the last year.
The company's balance sheet continues to grow with its strong
operating earnings and cash flow generation. Management wants to
deploy excess capital for selective acquisitions, reinvesting in
core businesses and share repurchases.
However, some of the factors that keep us on the sidelines
include the company's above-average exposure to commercial mortgage
loans and real estate loans. Moreover, its run-off reinsurance
business, which houses VADBe products, requires additional amounts
of contribution to reserves in case the interest rates are low.
Given the expectation of persistent low interest rate
environment, additional reserve strength may be required in the
future to offset uncertainty in earnings. Also, an under-funded
pension liability may dampen earnings.
Cigna carries a Zacks #2 Rank, which translates into a
short-term Buy rating. Peer
) retains a Zacks #3 Rank, implying a short-term Hold rating, and a
long-term Neutral recommendation.
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