Cigna's Good Medicine

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Cigna (NYSE: CI) was good medicine for the market today, as its improved first-quarter view provided lots of positive sentiment from investors. Following dismal news earlier this year, it sounds like the way to spell relief, but it's a little too early to call this a turnaround in an environment where rivals are extremely competitive for new members.

In February, Cigna reported a fourth quarter that was hardly a show of good health. Cigna said its revenues were down and its dividend had to go. It also announced job cuts. In addition, its membership numbers were depressed, due to competition from rivals like UnitedHealth Group (NYSE: UNH), Aetna (NYSE: AET), and WellPoint (NYSE: WLP), the latter of which is scheduled to be bought by Anthem (NYSE: ATH). There are also many smaller players in the biz.

Today, Cigna said it expects consolidated income from operations of $245 million to $275 million, or $1.75 to $1.95 per share, before onetime items; the old outlook called for $1.20 to $1.40 per share. For the entire year of 2004, it expects income of $720 million to $780 million, as compared to the previous guidance for $645 million to $705 million.

Cigna said that its better outlook is due to greater efficiency and better management of medical costs. It also touted some new product initiatives that are surely a way to try to retain membership as well as woo new members.

While it's good news, the challenge for the long term remains to attract new members. Indeed, competition has not only been steep recently, it's been shifting, if you consider that Anthem's purchase of WellPoint will create a company big enough to displace UnitedHealth from its No. 1 spot.

Cigna shares were recently up 13%, blowing past their old 52-week high to $68.57. Today's news certainly sounds better than February's bleak tidings, but whether such upbeat views are sustainable in the face of heated competition for new blood remains a question.

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Alyce Lomax does not own shares of any of the companies mentioned.