Michael Moore Comes Calling on Cigna

Shares of Cigna look poised to slip even before an unwanted cameo in Sicko, Moore's scathing new documentary on health insurers

by Joseph Weber

H. Edward Hanway and his turnaround team at Cigna (CI) have been on quite a roll, but filmmaker Michael Moore and the growing debate over health care may soon help put an end to that.

Hanway has performed some major surgery on the once-troubled health insurer in the past few years, and it's paid off. Cigna's stock has gained roughly 75% in the last 12 months, far outpacing its rivals. At about $54, the outfit's shares are just short of their all-time high, $57.61, set June 4. "The fundamentals are really solid today," says Hanway, Cigna's chief executive.

But the best days—at least the fastest-growing for the stock—may now be behind the $18 billion-a-year Philadelphia company. Cigna's shares suffered badly a few years ago as it wrestled with lawsuits over widespread failures to pay doctors on time and repeated service headaches that led to steep membership slides. Now that it's trading in line with such peers as UnitedHealth Group (UNH) and WellPoint (WLP) again, the stock is leaving some investors and analysts cool. "It's no longer a Cinderella story," says David Heupel, a portfolio manager at Thrivent Financial who in the past few months has sold off his fund's once-hefty position—the equivalent of about 210,000 shares after a recent split. "They're fairly valued now."

It won't help Cigna that it has an unpleasant cameo role in Sicko, the Michael Moore film about the ailing state of U.S. health care. The movie, slated for U.S. release June 29, takes a swipe at the insurer for a 2003 settlement of $85 million that it agreed to in order to resolve lawsuits filed on behalf of doctors who complained they were routinely paid late because of computer problems at the company. Moore's broadside also suggests a health plan member was approved for a cochlear implant for his hearing-impaired child only after he threatened to sic Moore on the company, something a Cigna spokesman denies.

A Knack for News Coverage

Analysts argue that the movie's immediate effect on stock prices—at Cigna and at health insurers generally—will likely prove fleeting, if there's any at all. Sophisticated investors, they say, won't likely find anything really new in the movie.

But Moore has a knack for inciting news coverage. The combative director has already enlisted doctors and nurses to demonstrate for better health care outside theaters. That could put a giant bull's eye on many health-care stocks. What's more, the film could sharpen the already brisk debate in Washington and among Presidential candidates over how to reform health care. Then, uncertainties about potential changes in the system could dampen the whole group's performance. "The [price-to-earnings] multiples are toward the low end of where they have been, but they certainly could go lower," says J. Paul Newsome, an analyst at A.G. Edwards (AGE) in St. Louis.

Industry leaders hope to co-opt Moore's message by putting out the word in Washington that they actually agree with him—sort of. "Michael Moore is shining a spotlight on the issue of whether and how we get all Americans covered and we agree with that priority," says Karen Ignagni, head of industry lobbying group America's Health Insurance Plans (AHIP).

Orchestrating a Dramatic Turnaround

Even if that spin on Moore's anti-insurer message pays off, Cigna's shares are hardly likely to keep up their breakneck growth. If Cigna does outpace UnitedHealth or WellPoint—outfits that have lost a CEO and a chief financial officer, respectively, in their own scandals recently—it will be because Cigna steals market share from them. After plunging from 13.4 million in 2001 to 9.1 million in 2005, Cigna's membership has climbed back to 9.8 million as of the opening quarter of this year.