UPDATE 1-Cigna shares bounce back amid capital concerns
(Recasts, adds analyst and Cigna comments, updates share movement)
NEW YORK, Oct 31 (Reuters) - Cigna Corp (CI.N) shares seesawed on Friday, falling as much as 37 percent to their lowest point in more than 13 years, before storming back into positive territory amid questions over the health insurer's capitalization and earnings forecast.
Cigna issued a statement on Friday afternoon saying its capital position remains strong. It also said it has no need or intention to issue equity, and it does not expect to issue additional long-term debt in 2008 under the current conditions, and would do so only if credit market conditions improved.
Cigna shares closed up 4.6 percent.
"We felt that we needed to clarify what we had said, partly in reaction to how the stock had moved today," Cigna spokesman Chris Curran said in explaining why the company issued its statement.
Cigna reported a 53 percent drop in third-quarter profit on Thursday. Comments by company officials during its call to discuss the results led to concerns about whether the company would try to raise debt.
The Philadelphia-based company may need to raise money to fund its pension, support a reserve for a death benefits annuity business that is backed by investments, or protect its debt and claims-paying ratings, said BMO Capital Markets analyst Dave Shove.
"It was fear that the company had to raise capital and that could end up either being expensive ... or outright diluting shareholders through an equity issuance," Shove said in explaining the Friday's initial stock drop.
"Investors, when they saw the stock down this morning, began to think this through a little more seriously, realized that the company was not actually going to have a capital crisis," Shove said, adding Cigna's statement "helped a lot."
JP Morgan analyst John Rex attributed Cigna's 21.5 percent stock drop on Thursday and its initial Friday swoon mostly to the company's "cautionary capital comments."
"We wonder why the company would be seeking to elevate debt levels in this market unless there is something we are not seeing," Rex said in a research note released before Cigna's statement.
In addition to reporting third-quarter results on Thursday, Cigna also forecast disappointing profit growth for next year, citing competitive pressure and the broader economic turmoil.
Cigna forecast 2009 earnings of $4 to $4.30 a share, while analysts were looking for $4.70. But even Cigna's projection may be a stretch, according to some analysts.
"In our opinion, Cigna's 2009 EPS guidance appears unrealistic across the board," Bank of America analyst Brian Wright said in a research note.
Wright said Cigna's forecast of a 2 percent drop in enrollment next year could be too rosy considering the amount of jobs that could be lost due to the weak economy, and that profit margins could be challenged. Continued...
