Last week, health insurer CIGNA
Financial terms were not disclosed for either deal, and the agreements will have little impact on CIGNA's stock price, which has already turned the momentum from a strong finish to 2006 into a 24% return for its shareholders thus far in 2007. Quest shares, however, appreciated 5% last week when the market learned of the two contract signings.
The Quest agreement is a comfort to investors, who now know that Quest will continue to be a contracted provider for one of the nation's largest health insurers. The deal also quells the uncertainty about whether Quest would suffer a fate similar to what happened when it lost out to Lab Corp. last fall over a bid for UnitedHealth Group's
The Lab Corp. deal with CIGNA is a bit of a double-edged sword. The agreement allows Lab Corp. to continue as a contracted provider in all of CIGNA's markets and will also lift marketing restrictions for the company. The downside is that it will lack the advantage of being the exclusive recipient of CIGNA's business, as it is with UnitedHealth.
Regardless of the ultimate outcome of these two deals, Quest has done an exceptional job of making sure that it doesn't rely too much on any one of these major health insurers for business. In 2006, only three insurers accounted for more than 5% of the company's net revenues. Combined, they made up only 19%, and one of the three was UnitedHealth, topping the list at 7%. The diversification is making this company look good.
Lab Corp. and UnitedHealth are Stock Advisor selections. Interested in health-care stocks Tom and David Gardner have recommended? Then sign up for a free 30-day trial of Stock Advisor, which is beating the market by more than 37 percentage points.
Quest and UnitedHealth are Inside Value recommendations.