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Cigna: Potential for Strong Upside as Wall Street is Not Expecting Much

|Includes: Cigna Corp. (CI)

Not much is expected out of Cigna by Wall Street ahead of earnings. However, I have friends who are top healthcare analysts with a large Wall Street firm who I unforunately can not name as a result of the fact that their research is not sold to the general public like that of Merrill or other sell-side firms whose reports you can find easily from your broker. Per Credit Suisse's "3 Things to Look for When CI Reports 4Q10 Results and Hosts Investor Day":

Expect 4Q10 EPS Upside on Low Cost Trend: Our 4Q EPS $1.03 vs. ConsExpect On the Call: CFO search update, impact of $1.02, GC MLR 82.3%.

Reform regs on voluntary, limited benefit and student offerings and international benefit plans, provider contracting and utilization trends, and investment portfolioespecially commercial mortgage holdings and pension funding status.

However my sources are considerably more bullish. They are looking for $1.18 tomorrow morning. Additionally they are telling me that the historical move on earnings is 5.5% and options are currently pricing in a 4.7% move.
So what is the trade? Buy the Cigna Feb 42 Call options. Should we in fact get a 5.5% move to the upside as historically we would expect we would move to 44.83. Those calls would then be worth approximately $5.00 or double what they are worth currently. This is clearly a speculative position, but I have some great analysts behind this one. I wish I could share the firm name, but unfortunately that would mean betraying very significant relationships, which I can not do.


 



Disclosure: I am long CI.

Additional disclosure: Long Cigna through 5 Feb 42.00 Call Options