On Jun 11, 2014, health insurer Cigna Corp. (CI), jumped to a 52-week high of $91.63 with 1.84 million shares traded during the course of the session.
The rally in the stock was brought about by investor optimism on the company that has been continuously performing well, unfazed by the challenges grappling the health insurance industry.
Cigna is one of the industry titans that adopted a differentiated approach to navigate the industry. Along with focusing on organic development, the company sought acquisitions for speedier growth. One good example of the company’s inorganic growth step was the acquisition of HealthSpring in 2012 that positioned it well in Government business, in which Cigna was virtually non-existent. Two years down the line, results reflect accrual from the deal in the form of higher earnings as well as increased enrollment.
Apart from making additions to its business, the company also exited its run off death-benefits business in a transaction with Berkshire Hathaway Inc. (BRK.B). The business had been a drag on the company’s earnings for more than a decade.
Moreover, buoyed by a strong first-quarter performance, Cigna pulled up its earnings expectation for 2014. The company now expects earnings of $7.05 to $7.35 instead of $6.80 to $7.20 guided previously. The Zacks Consensus estimate of $7.31 lies near the top end of the guidance. Consolidated earnings from operations are expected between $1.93 billion and $2.0 billion compared with $1.90 billion to $2.0 billion as projected earlier.
The positive investor sentiment is fortified by this upbeat guidance, despite restrictions on charging higher rates to those with pre-existing medical conditions, limited profit making from Medicare plans, industry taxes and other changes.
Cigna has been also witnessing rising earnings estimates. Over the last 60 days, the Zacks Consensus Estimate for 2014 moved up 2.1% to $7.31 as 11 of the 13 estimates moved north. The estimates for 2015 were up 1.3% to $8.06 as 9 of the 13 estimated moved in the same direction.
Cigna carries a Zacks Rank #3 (Hold). Better-ranked players include Horace Mann Educators Corp. (HMN) and Old Republic International Corporation (ORI) with a Zacks Rank #1 (Strong Buy).