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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


July 31st 2009 Cigna
NYSE Symbol: CI
Industry: Healthcare/HMO
Price as of July 31st: $28.40

With the Democratic party firmly in control of Congress and the White House, two industries Healthcare and Defense have come under considerable selling pressure. Lockheed Martin sold off sharply two weeks ago when Congress rejected a bill to continue the support of the F-22. Healthcare has been a big issue recently as the President tried to jam through a new healthcare bill before Congress recesses in August. Support for President Obama's dramatic healthcare reform is on the wane helping ease fears and garner support for a number of healthcare stocks including this weeks' featured stock, Cigna. The Philadelphia company operates in the U.S. and internationally providing health care, disability and life insurance, run-off reinsurance, and other operations. Cigna has performed well this year providing much better than expected earnings this week. But even with the run up in Cigna's stock, the stock is still trading at an attractive level.
On Thursday, Cigna reported earns of $435 million, or $1.58 per share, up from $272 million, or 96 cents per share. Revenue fell 8% to $4.49 billion from $4.86 billion. Adjusted profit from operations grew 3% to $313 million, or $1.14 per share. Analysts expected a profit of 96 cents per share on $4.8 billion in revenue, according to Thomson Reuters.
Cigna included 40 cents per share profit from its guaranteed minimum income benefits business which has been discontinued. The insurer also said a decision to freeze its pension plan also helped in the second quarter, providing a benefit of 11 cents per share. But even subtracting these gains, the company still easily beat estimates. Cigna's better than expected earnings came from disability insurance, international businesses, and cost cutting. The Chairman and CEO was proud of his company's performance stating that their diversified portfolio proved beneficial in this challenging economic environment.
Total enrollment fell to 11.2 million, down from 12.1 million in the same quarter last year. Cigna said premiums and fees for its health care segment, the largest portion of its business, fell 7% to $2.85 billion due to the enrollment decline. A majority of the decline in enrollment was due to employees losing health insurance, not employers dropping Cigna as a benefits provider. For the full year, Cigna raised adjusted profit outlook, to $3.80 to $4 per share. That tops analysts' profit expectations of $3.71 per share.
Due to the political pressure, Cigna's valuation is very low. The stock trades for 7.5 times earnings, 6.7 times next years estimates, and 0.3 times sales. The stock also trades for 1.8 times book value. The company provides a very small dividend, so it's more of a capital appreciation play. But trading for just 6 times next year's earnings, the stock has plenty of upside.