January 26, 2010 / 2:35 PM / 9 years ago

UPDATE 1-Oppenheimer cuts Cigna for underpriced medicare product

Jan 26 (Reuters) - Oppenheimer downgraded Cigna Corp (CI.N) to “perform” from “outperform,” saying the health insurer has underpriced its medicare private fee for service (PFFS) product in 2010.

Oppenheimer analyst Carl McDonald expects Cigna to add about 100,000 new Medicare members this year, resulting in revenue of $1 billion, and said with a negative 5 percent margin assumption, it will cost Cigna about $50 million in earnings, or 10 cents a share.

McDonald, who trimmed his price target by $1 to $38 on the stock, said Cigna will have to inject capital of about $200 million into its subsidiaries to maintain risk based capital ratios, limiting the cash available for share repurchase in 2010.

He said Cigna is one of the more expensive stocks in the group, and a less appealing hiding spot for investors looking for managed care exposure.

Shares of the company closed at $36.35 Monday on New York Stock Exchange. (Reporting by Anuradha Ramanathan in Bangalore; Editing by Anil D’Silva) ((anuradha.ramanathan@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800: Reuters Messaging: anuradha.ramanathan.reuters.com@reuters.net))

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