AET Aetna Inc. (delisted)

Early last week, CIGNA Corp. (CI) announced that it had entered into an agreement with Affinity Health System, whereby CIGNA would provide its members in-network access to St. Elizabeth Hospital in Appleton, Calumet Medical Center in Chilton, Mercy Medical Center in Oshkosh, as well as Affinity’s 26 clinics and nearly 250 affiliated health care professionals in northeastern Wisconsin.

Affinity Health System offers patient-focused, team-based, primary and specialty care at its convenient close-to-home clinics and hospitals.

CIGNA HealthCare has an extensive national network of participating health care professionals, which, as of December 31, 2010, consisted of about 5,500 hospitals and around 640,800 health care professionals, along with other facilities, pharmacies and vendors of health care services and supplies.

In most instances, CIGNA HealthCare contracts directly with the participating hospital, health care professional or other facility to provide covered services to customers at agreed-upon rates of reimbursement. However, in some instances, CIGNA HealthCare companies contract with third parties to access their provider networks and care management services. In addition, CIGNA HealthCare has entered into strategic alliances with several regional managed care organizations (Tufts Health Plan, HealthPartners, Inc., Health Alliance Plan, and MVP Health Plan) to gain access to their provider networks and discounts.

CIGNA has shown a solid performance in the first quarter of 2011. Its first quarter earnings of $1.37 per share outpaced the Zacks Consensus Estimate of $1.09 per share and the year-earlier quarter’s earnings of $1.01 per share. Strong earnings from across the board, coupled with a lower share count over the prior year, accounted for the better-than-expected result.

Given solid results and a favorable operating environment, management revised its earnings guidance provided in the fourth quarter of 2010. It expects adjusted income from operations in the range of $1.3 billion to $1.4 billion, up from the $1.2– $1.3 billion range forecasted earlier. Consequently, EPS guidance has also been increased to $4.65–$5.00 range from the previous $4.30–$4.70 range.

Philadelphia-based CIGNA competes with UnitedHealth Corp. (UNH), Wellpoint Inc. (WLP), and Aetna Inc. (AET).

CIGNA has shown operating momentum and has gained commercial risk membership for five consecutive quarters. Going forward, we expect CIGNA to maintain this momentum as it is relatively safe with respect to exposure to minimum medical loss ratio regulations, unreasonable rate reviews and health insurance exchanges. Moreover, the recently completed Vanbreda acquisitions should speed up the 2012 international earnings growth.

CIGNA carries a Zacks Rank # 2, which translates into a Buy rating over the short term. But, over the longer term (6+ months), we rate the shares Neutral.

 
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