Cigna Hits 52-Week High on Strong Earnings, Positive Rating

On Feb 18, 2015, health insurer Cigna Corp. (CI) surged to a 52-week high of $116.12. The rally in the stock was propelled by strong fourth-quarter earnings, and a positive rating outlook by A.M. Best. About 1.02 million shares exchanged hands in the last trading session.

Over the past one year, the stock gained 49.6%, significantly higher than the S&P 500’s increase of 14.1% over the same time frame.

Growth Drivers

Cigna's strong fourth-quarter financial performance is the continuation of its track of solid results and attractive revenue and earnings growth.

Operating earnings of $1.69 per share comfortably beat the Zacks Consensus Estimate of $1.65. Earnings were also up 22% year over year.

The company’s top line grew 9.5% year over year to $8.9 billion and beat the Zacks Consensus Estimate of $8.6 billion. The improvement in revenues came from increases in premiums and fees, investment income and mail order pharmacy revenues.

Investors are optimistic on the stock given that Cigna delivered a positive surprise in nine out of past 10 quarters, with an average beat of 8.5%.

Another reason for being optimistic on the company is that it received rating affirmations from A.M. Best Co., while the outlook for the issuer credit ratings was changed to positive from stable. The outlook revision takes into account the company’s ability to swiftly adapt to the changes implemented by the Affordable Care Act. Moreover, numerous strategic initiatives undertaken by the company also places it well for long-term growth.

Cigna’s intelligent use of capital via share buyback and increase in dividend also make it a favored stock. Investors’ confidence in the stock also stems from the company’s earnings outlook. For 2015, the company expects operating income per share in the range of $8.00–$8.40, the $8.20 midpoint of which translates into year-over-year growth of 10.4%. The company also said that it expects revenue growth of 8–10%.

Estimates Revisions Show Strength

Driven by optimism surrounding the stock, the Zacks Consensus Estimate for 2015 earnings per share climbed 1.8% to $8.33 over the last 30 days. The same for 2016 is up 1.1% to $9.21 per share.

Zacks Ranks

Cigna carries a Zacks Rank #2 (Buy). Other players carrying the same Zacks Rank as Cigna are Enstar Group Limited (ESGR), FBL Financial Group Inc. (FFG), Zurich Insurance Group Ltd (ZURVY).