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Analyst Blog

On Mar 14, 2013, shares of Cigna Corp. (CI - Analyst Report) hit a 52-week high of $62.29, driven by the fundamental strength of the company. This multi-line insurance company witnessed positive earnings surprise over the last three quarters with average of 11.7%. Moreover, Cigna delivered positive earnings surprise in 14 of the past 20 quarters.                                                                 

On Feb 7, 2013, the company reported fourth-quarter 2012 earnings of $1.57 per share, surging almost 50% year over year. Earnings outpaced the Zacks Consensus Estimate of $1.49 per share as well.

Cigna’s balance sheet continues to grow with its strong operating earnings and cash flow generation. Additionally, the company’s recent reinsurance agreement with Berkshire Hathaway Life Insurance Company of Nebraska has offloaded one of its most significant liabilities and will allow it to focus on more important aspects of its business.

Cigna has also made accelerated investments in technology infrastructure, which is expected to yield efficiency gains in 2013 and beyond.

The company expects to deliver operating earnings of $1.7–$1.83 billion or $5.85–$6.30 per share in 2013. The Zacks Consensus Estimate for 20132 is a cent above the company guidance. It is currently pegged at $6.31, reflecting 5.3% year over year increase. The long-term expected earnings growth rate for this stock is 10.1%.

Further, the valuation of Cigna looks reasonable. The shares are currently trading at a premium to the peer group average both on price-to-earnings and price-to-book basis. However, its return on equity of 18.8% is substantially higher than the peer group average of 6.5%. The 1-year return from the stock is 37.8%, much above the S&P 500’s return of 14.0%.

Cigna currently carries a Zacks Rank #2 (Buy). Other stocks in the insurance sector that are worth a look are CNO Financial Group Inc. (CNO - Analyst Report), AXA Group (AXAHY) and Assured Guaranty Ltd. (AGO - Snapshot Report). All these are Zacks Rank #1 (Strong Buy) stocks.

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