We are reiterating our Neutral recommendation on the shares of
), following the third quarter earnings.
The company performed strongly during the quarter and is 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 ( business and its pension
burden keeps us on the sidelines. Moreover,we vremain uncertain
as to how the changes taking place in 2013 in the industry as a
part of the Health Care reform will impact the company.
CIGNA has gained a significant market presence in the Government
market by acquiring HealthSpring Inc.
During September 2012, CIGNA Corp. acquired Great American
Supplemental Benefits from American Financial Group, Inc. (AFG).
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.
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
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.
CIGNA CORP (CI): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis
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