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David Einhorn on Cigna (CI)
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CI is a managed care company with three primary divisions: Cigna HealthCare, Cigna Group Disability and Life, and Cigna International. Cigna HealthCare, which comprises about 70% of CI's profits, offers medium and large companies traditional risk-based insurance, in addition to administering plans for those that prefer to self-insure. Cigna HealthCare recently bought HealthSpring to enter the fast-growing Medicare Advantage market. Cigna Group Disability and Life is a low-growth, stable business. Cigna International, which provides insurance policies for individuals, as well as insurance and administrative services for multinational companies and governments, is growing at more than 20% per year. We believe that CI deserves a higher multiple because the plan administration business is a service business that doesn't take risk, and the other divisions do not warrant discounted values. Our purchase price of $45.42 per share valued CI at less than 8x estimated 2012 EPS and approximately 6x our forecast of post Obamacare 2014 EPS. CI shares closed the quarter at $44.00 each.
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