A pair of sell-side analysts say spread widening is likely to continue for Cigna, even as bond spreads have gapped 100 basis points over the last few weeks in the wake of three successive earnings charges. "Cigna has erased much of the credibility it's enjoyed over the past couple of years," says David Havens, an insurance analyst at UBS Warburg, and a third-teamer on the 2002 Institutional Investor All-America Fixed-Income Research team. He says the recent charges have erased 25-30% of the healthcare insurer's net worth. "Call me old-fashioned, but that's not what you expect to see out of a single-A rated credit," he says.
Cigna's benchmark 6.375% notes of '11 (A3/A) were quoted at 325 basis points over Treasuries last Tuesday. Havens sees continued downside in the bonds, arguing that they have not sold off as sharply as the stock because the name is not widely held, and a number of large holders appear to have not yet capitulated.
Another analyst at a bulge bracket firm is slightly less negative on the name, though he, too, sees further downside risk, and no catalyst to make the bonds trade tighter. He says business fundamentals among health maintenance organizations generally are sound, and Cigna does have some financial flexibility. However, "I wouldn't call myself optimistic," he says.