On Apr 15, 2013, shares of Cigna Corp. hit a 52-week high of $66.94, driven by the fundamental strength of the company.
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 allowing the company to focus on important aspects of its business. Cigna has also made accelerated investments in technology infrastructure, which are expected to yield efficiency gains in 2013 and beyond.
Further, the valuation of Cigna looks reasonable. The shares are currently trading at a premium to the peer group average on both a price-to-earnings and a price-to-book basis. However, its return on equity of 18.9% is substantially higher than the peer group average of 6.5%.
With respect to earnings trend, Cigna witnessed positive earnings surprises in 3 of the last 4 quarters with an average beat of 7.81%. The company expects to deliver operating earnings of $1.7–$1.83 billion or $5.85–$6.30 per share in 2013.
Moreover, our proven model shows that this multi-line insurance company is likely to beat earnings in the first quarter of 2013 because it has the right combination of a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and Zacks Rank. ESP or Expected Surprise Prediction, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.70%. Cigna currently carries a Zacks Rank #3 (Hold).
Cigna is expected to announce its first-quarter earnings before the closing bell on May 2. The Zacks Consensus Estimate for the company’s first-quarter earnings is currently pegged at $1.43 per share, up 15.54% year over year.
Other stocks in the insurance sector that are worth a look are CNO Financial Group Inc. – Zacks Rank #1 (Strong Buy), Assurant Inc. – Zacks Rank #2 (Buy) and MetLife Inc. – Zacks Rank #2 (Buy).