Analyst Eric Veiel says the health-insurance giant's warning of higher medical costs represent a tremendous challenge; it appears Cigna has a base medical cost structure that is out of line with competitors. He says concern over the strength of Cigna's balance sheet is intensified by its guidance change. He thinks Cigna's stock dividend is at risk, that debt ratings are likely to be lowered, and that Cigna's ability to invest in itself is severely limited. He says management credibility was dealt a major blow after Cigna warned of an earnings shortfall Friday.
Veiel thinks the bad news flow is not done yet. He cut the $5.50 2003 earnings per share estimate to $5.00, and cut the $6.00 2004 estimate to $5.40. He rates the shares as underperform.