NEW YORK (AP) -- A Credit Suisse analyst said Thursday that Cigna Corp. is his top choice among health insurance stocks, and said most of the other companies in the sector are trading at fair prices.
Analyst Ralph Giacobbe began coverage of health insurers with a "Market Weight" rating on the sector, down from Credit Suisse's previous "Overweight" rating. Giacobbe established "Outperform" ratings on Cigna Corp. and UnitedHealth Group Inc.
The analyst added Bloomfield, Conn.-based Cigna to the firm's Focus List, removing UnitedHealth. Cigna, which acquired HealthSpring for $3.8 billion earlier this year, benefits from its diversified business and strong financial position, Giacobbe wrote, allowing it to grow its business or return capital to shareholders.
Giacobbe said health insurance companies overall should gain a significant amount of new business in the long term, but in the next couple of years, the growth in health care reform-related costs will outpace savings.
"2014 is sure to see a cost trend increase, as millions of previously uninsured gain coverage," Giacobbe wrote in a note. "Managed care stocks historically have not performed well in a rising cost backdrop."
The analyst said private managed care companies control about $1.2 trillion out of $2.8 trillion in U.S. health care spending, and because they will be a necessary part of controlling health care costs, they will have the opportunity to gain a "much larger share" of that spending as more people acquire health insurance and government health care programs move more people to private insurance plans.
In addition to "Outperform" ratings on Cigna and UnitedHealth shares, Giacobbe set "Neutral" ratings on shares of Aetna Inc., Centene Corp., Coventry Health Care Inc., Humana Inc., Molina Health Care Inc., and Triple-S Management Corp.
Credit Suisse previously rated Cigna shares at "Neutral" and shares of Coventry, Humana, and Triple-S and "Outperform." The other ratings were unchanged.
Giacobbe's price target for Cigna of $56, up by $2 from the prior target, implies that those shares will rise about 25 percent over the next 12 months. The stock picked up 90 cents, or 2 percent, to $45.77 in afternoon trading.
UnitedHealth shares added 13 cents to $54.77, while Aetna shares lost 31 cents to $38.81, Coventry stocked declined 15 cents to $41.80, and Humana shares fell $1.50, or 2.1 percent, to $69.23. Meanwhile, the broader trading averages were mostly down.