Cigna (NYSE: CI) shares are falling today after competitor Coventry Health Care (NYSE: CVH) lowered its fiscal 2008 earnings forecast to a range between $3.65 and $3.75 for the year, well below the $4.43 per share expected by analysts. Investors are really punishing CVH today and the stock is down 22% currently. Cigna is getting caught in the crossfire as investors worry that similar stocks may also disappoint come earnings time. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CI.
After hitting a one-year high of $56.98 in January, the stock hit a one-year low of $36.75 in March. This morning, CI opened at $38.24. So far today the stock has hit a low of $36.28 and a high of $38.34. As of 12:15, CI is trading at $36.86, down 2.84 (-7.1%). The chart for CI looked neutral and improving until today's drop, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in four months as long as CI is below $45 at October expiration. Cigna would have to rise by more than 19% before we would start to lose money.
CI hasn't been above $45 since February and has shown resistance around $42 recently. This trade could be risky if legislation that hurts health insurance companies fails to make it through the government, but even if that happens, this position could be protected by resistance CI might find at its 50-day moving average, which is currently around $42 and falling.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in CI, CVH, or AET.
It has been a tough year for investors. We have been dealing with recession fears, housing market worries, high gasoline prices and a very weak U.S dollar. As much as we would love to say that the worst is behind us, we still could be in for some more rocky times ahead. So its best to try to figure out which stocks would be best to avoid for the time being.
Richard Gibbons wrote up a nice piece over on The Motley Fool that looks at some of the stocks that we would be wise to stay away from at this time. Regardless good or bad times, he is convinced there are always ways to make money, but in order to find the winners, it is also necessary to pull out the losers.
So how can we separate out the winners from the losers?
Gibbons seems to have a simple answer for this. He believes there is really no use in wasting our time trying to separate the winners from the losers as there are so many great cheap stocks that could offer us a chance to make money. Gibbons' advice is to not choose ugly and risky companies that could put our hard earned money at risk. To makes this clear, he uses a baseball analogy, expressing his options for the curve balls instead of the fastballs.
Health insurer Cigna Corp. (NYSE: CI) reported a plunge of 80% in first-quarter profit this morning. The results were dragged down by deep charges related to its reinsurance business and litigation. The company missed analysts' earnings targets, and also issued a warning for its full-year earnings, sending its shares down in premarket.
For the quarter, Cigna said that its profit dropped to $58 million, or 21 cents per share, compared with $289 million, or 98 cents, reported in the same period a year ago. Excluding one-time items, the insurer's earnings numbers would have come at 94 cents per share, one cent below the average estimate of analysts, according to Thomson Financial .
Looking at revenue, Cigna posted a rise of 4.5% in the quarter on a year-over-year basis. Analysts had been expecting to see revenue of $4.55 billion, while the actual number was slightly higher, at $4.57 billion. The company said that the number of clients who joined its health plans jumped 5.5% to 10.4 million.
MOST NOTEWORTHY: Yahoo!, Cigna and Aegean Marine were today's noteworthy upgrades:
Citigroup upgraded shares of Yahoo! (NASDAQ: YHOO) to Buy from Hold as they believe Microsoft (NASDAQ: MSFT) is unlikely to walk away from Yahoo! and that there is potential Microsoft could bid $34/share.
Credit Suisse upgraded Cigna (NYSE: CI) to Outperform from Neutral citing the company's favorable business mix.
Stephens upgraded shares of Aegean Marine (NYSE: ANW) to Overweight from Equal Weight on valuation as they see an attractive entry point at current levels.
OTHER UPGRADES:
JMP Securities raised D.R. Horton (NYSE: DHI) to Strong Buy from Outperform and Pulte Homes (NYSE: PHM) to Outperform from Market Perform.
MOST NOTEWORTHY: Analog Semiconductors, Hill International and Varian Semi were today's noteworthy upgrades:
Lehman upgraded Analog Devices (NYSE: ADI), Fairchild Semi (NYSE: FCS), and Intersil Corp (NASDAQ: ISIL) to Overweight from Equal Weight. The firm believes Analog semis have one of the most attractive risk/reward profiles in technology and expects the group to outperform in 2008.
B. Riley raised Hill International (NYSE: HIL) to Buy from Neutral following the company's Q4 results which they believe continued to reflect strong growth across both segments of the business.
ThinkEquity upgraded Varian Semi (NASDAQ: VSEA) to Accumulate from Source of Funds citing valuation and expectations that the company will end up with over 70% of the overall implant market past 2008. The firm adds that scale and pricing power should drive upside to margins.
OTHER UPGRADES:
Collective Brands (NYSE: PSS) was raised to Buy from Hold at Soleil.
JP Morgan upgraded Rockwell Collins (NYSE: COL) to Overweight from Neutral.
UBS upgraded Cigna (NYSE: CI) to Buy from Neutral.
CIGNA Corp. (NYSE: CI) reported third-quarter earnings this morning that rose 22%, strengthened by increased membership, reduced medical expenses, and growth in specialty services. Cigna officials now expect 2007 earnings to come in at $3.80 to $4 a share. However, a warning from the company about 2008 earnings is pushing the stock lower. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CI.
After hitting a one-year high of $57.61 in June and falling thereafter, the stock has risen over the past two months. This morning, CI opened at $51.25. So far today the stock has hit a low of $48.63 and a high of $51.25. As of 11:15, CI is trading at $49.50, down $2.25 (-4.3%). The chart for CI looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
CIGNA Corp. (NYSE: CI) opened at $53.06. So far today the stock has hit a low of $52.14 and a high of $53.36 As of 11:00 this morning, CI is trading at $52.50, down $0.57 (-1.1%).
After hitting a one year high of $57.61 in early June, the stock has been fairly flat over the past six weeks. Looking past the current state of panic in the market, still driven largely by sub-prime, Jim Cramer recommends CI as a stock that is completely independent of that mess, and a stock that will continue to rise. Technical indicators for CI are bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $45 range. A bull-put credit spread is an options position that combines the purchase and sale of call options to hedge risk and leverage returns. For this particular trade, we will make a 4.2% return in less than 3 months as long as CI is above $45 at October expiration. CI would have to fall by more than 15% before we would start to lose money.
CI hasn't been below $45 since February and has shown support around $52 recently. This trade could be risky if the company's earnings (due out August 1) disappoint, but even if that happens, it looks like this position could be protected by CI's 200 day moving average, which is currently at $47 and rising.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in CI.
MOST NOTEWORTHY: US Airways (LCC), Cigna Corp (CI), Gentex Corp (GNTX) and China Life Insurance (LFC) were today's more noteworthy upgrades:
UBS upgraded US Airways (NYSE: LCC) to Neutral from Reduce based on valuation.
Cigna Corp (NYSE: CI) was upgraded to Neutral from Sell at Banc of America to reflect the company's market share gains and share buybacks.
Banc of America also raised Gentex Corp (NASDAQ: GNTX) to Buy from Neutral to reflect increased penetration of the company's new rear-camera display product.
Deutsche Bank upgraded shares of China Life Insurance (NYSE: LFC) to Hold from Sell on valuation and the continued strong equity markets...
OTHER UPGRADES:
Morgan Stanley raised DirecTV Group (NYSE: DTV) to Overweight from Equal Weight.
MOST NOTEWORTHY: Tektronix, Inc (TEK), GameStop Corp (GME) PrivateBancorp, Inc (PVTB), Quebecor World Inc (IQW) and CheckFree Corp (CKFR) were today's more noteworthy upgrades:
JP Morgan upgraded shares of Tektronix (NYSE: TEK) to Overweight from Underweight citing improving sector fundamentals.
JP Morgan also raised GameStop (NYSE: GME) to Overweight from Neutral based on the May sales data.
Oppenheimer upgraded PrivateBancorp (NASDAQ: PVTB) to Neutral from Sell based on valuation.
BMO Capital raised Quebecor World (NYSE: IQW) to Market Perform from Underperform on valuation.
CheckFree (NASDAQ: CKFR) was assumed with a Sector Outperformer from Sector Performer at CIBC citing a favorable risk/reward, solid secular underlying trends, and overblown concerns for its rating...
OTHER UPGRADES:
Symantec Corp (NASDAQ: SYMC) was upgraded to Buy from Neutral at Goldman.
Bernstein upgraded the semiconductor sector to Overweight form Market Weight on expectations that utilization will rise starting in Q2. The firm upgraded ASML Holding NV (NASDAQ: ASML) to Outperform from Market Perform and Infineon Technologies (NYSE: IFX) to Market Perform from Underperform.
UBS upgraded Quest Diagnostics to Buy from Neutral, citing Laboratory Corporation Of America Holdings' (NYSE: LH) contract renewal with Cigna HealthCare, which should ease concerns regarding deteriorating pricing.
Fannie Mae was upgraded to Outperform from Market Perform at Friedman Billings, citing improving fundamentals, better business mix and the possibility the company reports current financials in the next 12-18 months.
The dot-com bust may finally be over. Tech company Compuware Corporation (NASDAQ: CPWR) posted 4Q 2007 earnings and FY 2007 earnings, both of which were good. 4Q 2007 revenues totaled $313 million, with net income of $67.5 million. Diluted EPS was $0.21. Revenues break down into just over $73 million for software license fees, $118 million for maintenance fees, and $122 million for service fees.
Compuware has been busy these past several quarters. In 4Q it completed the acquisition of Proxima Technology, and also launched a bundle of software testing services called Compuware Test Factory. It will partner with IT service company Atos Origin to provide outsourced software testing services worldwide. Domestically, Compuware partnered with health care management giant CIGNA (NYSE: CI) to provide the structure for health care information exchange between medical providers and insurance companies. Compuware also introduced applications designed to provide additional security for mainframe data storage. It also expanded the availability of Compuware Unifaec 9.1, designed to work across Web, Windows, Unix, or mainframe platforms.
These initiatives contributed to Compuware's good FY 2007 numbers, the first full-year revenue growth since 2000. FY revenues were $1.2 billion with net income of $158 million, an increase of 10%. FY diluted EPS is $0.45, a 21% increase. FY revenue breakdown is $283.4 million for software license fees, $457.6 million for maintenance fees, and service fees of $472 million. Already more than 90% of Fortune 100 companies use Compuware to increase efficiency, control costs, and improve productivity. The stock recently closed at $11.20, down $0.02.
MOST NOTEWORTHY: ValueClick, Inc (VCLK), aQuantive, Inc (AQNT), Cigna Corp (CI), Warner Music Group (WMG), Clear Channel Communications, Inc (CCU) and Medtronic, Inc (MDT) were today's more notable downgrades:
Baird cut ValueClick Inc (NASDAQ: VCLK) to Neutral from Outperform, citing the FTC inquiry.
aQuantive (NASDAQ: AQNT) was downgraded to Sell from Buy after the company was acquired by Microsoft (MSFT) and because aQuantive no longer trades on fundamentals. Kaufman and Gabelli also cut aQuantive to Hold from Buy.
Cigna (NYSE: CI) was downgraded at Prudential to Neutral from Overweight on valuation.
Warner Music Group's (NYSE: WMG) downgrade to Sell from Neutral at Pali Research was based on the lower industry outlook, which Pali believes revenues are likely to fall at least 10% for the industry in 2007, along with the company's release schedule.
Bear Stearns downgraded Clear Channel Communications (NYSE: CCU) to Peer Perform from Outperform on the acceptance of the higher bid.
Medtronic Inc (NYSE: MDT) was downgraded to Underweight from Equal Weight at Morgan Stanley...
MOST NOTEWORTHY: Ericsson (ERIC), Hiland Holdings (HPGP), AVX Corp (AVX), Tibco Software Inc (TIBX) and UPS (UPS) were some of today's notable downgrades:
UBS downgraded shares of Ericsson (NASDAQ: ERIC) to Neutral from Buy following the company's Q1 report that showed weaker than expected operating cash flow.
Hiland Holdings (NASDAQ: HPGP) was cut from Wachovia to Underperform from Market Perform.
AVX Corp (NYSE: AVX) was downgraded to Underweight form Neutral at JP Morgan.
Cigna (NYSE: CI) shares are falling today after competitor Coventry Health Care (NYSE: CVH) lowered its fiscal 2008 earnings forecast to a range between $3.65 and $3.75 for the year, well below the $4.43 per share expected by analysts. Investors are really punishing CVH today and the stock is down 22% currently. Cigna is getting caught in the crossfire as investors worry that similar stocks may also disappoint come earnings time. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CI.
Here are some highlights from this past week's 
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Waiting for the other shoe to drop: The looming credit crisis
Closing Bell: Dow down 7.7%; GE, YHOO, MS fall, PGI, MNT soar
Bet on T&A with J&J (JNJ)
