CIGNA Prices Notes - Analyst Blog

In relation to the buyback of $350 million 8.5% senior notes, CIGNA Corp. (CI) announced yesterday that it will pay the holders of the notes $1,307.54 per $1,000 principal amount. Apart from the purchase price, CIGNA will also pay accrued and unpaid interests on Notes purchased up to, but not including the settlement date.

CIGNA expects to utilize funds from offering of $250 million of 4.375% senior notes due 2020 to buyback a part or whole of the $350 million Notes. Interest on the new Notes will be payable on June 15 and December 15 of each year, beginning June 15, 2011.

As of September 30, 2010, CIGNA's debt-to-capital ratio stood at 27.5%, which is on the higher end of management's target range of 20%–30%. Following the issue and repurchase of notes, the debt-to-capital ratio is expected to remain almost unchanged.

CIGNA's debt carries a rating of “BBB” from the rating agency Standard & Poor's. The rating stands at a notch higher than the lowest investment grade.  The “BBB” debt rating reflects the company's vulnerability to any adverse change in financial and economic conditions that could affect its debt commitment.

During the third quarter of 2010, CIGNA reported core earnings of $1.10 per share, which came in above the Zacks Consensus Estimate of $1.06. The insurer earned $1.13 per share last year. Better-than-expected results were driven by improved contribution from Health Care, Disability & Life and International segments

CIGNA has reported favorable results for the first nine months of 2010. However, concerns regarding the global economy and the impact of the U.S. Health Care Reform Act persist. However, we note that CIGNA is more "reform resistant" than other health insurers due to its relatively low enrollment rate in Medicare Advantage and individual or small group insurance products, the two product lines that are perceived as vulnerable to the Health Care Reform.

Also, a strong capital position, diverse revenue operations and continual share repurchases bode well for the company. We maintain an Outperform rating on the shares. CIGNA carries a Zacks #2 Rank, which translates into a Buy recommendation over the near term (1−3 months).

Headquartered in Philadelphia, CIGNA competes with other players such as Aetna Inc. (AET), UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP)

 
AETNA INC-NEW (AET): Free Stock Analysis Report
 
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