Wells Fargo Cuts Valuation Range on CIGNA (CI) Following the HealthSpring (HS) Acquisition Announcement

Wells Fargo is maintaining its Market Perform rating on shares of CIGNA (NYSE: CI), but is lowering its valuation range from $50-$56 to $47-$53 due to the recent plans to acquire HealthSpring (NYSE: HS) for $55 per share.

The company plans on paying for the acquisition with bridge financing initially and then a $760 million equity offering plus cash. The firm estimates the acquisition will be completed during the first quarter of 2012 and notes that "Cigna lacked this key growth area in its U.S. business."

Management offered new guidance as a result of the acquisition and the Wells Fargo has tweaked its estimates to go inline. For 2011 and 2012, the firm now forecasts EPS of $5.29 and $5.83 from $5.20 and $5.60. Revenue for the two years is estimated to be $22.1 billion and $28.1 billion.

An analyst at Wells Fargo commented, "We believe Cigna's current management team has refocused the health care business to achieve a more competitive positioning in its more differentiated market segments and we believe its international business is a strong performer. However, we have set the valuation multiple on the low side of our group multiples to reflect our concern over Cigna's balance sheet and longer-tailed reinsurance run-off businesses."

For more ratings news on CIGNA click here and for the rating history of CIGNA click here.

Shares of CIGNA closed at $45.34 yesterday.

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