Cigna Soars as Insurers Spring Forward

Still, he stopped short of recommending Cigna's shares and pointed to Aetna AET and UnitedHealth as better buys.

"We have increasing confidence that Cigna will perform well relative to low investor expectations," Borsch wrote. But "we still see significant risks in Cigna's turnaround."

Meanwhile, Oxford bounced on takeover rumors and an analyst upgrade. The regional health insurer jumped 9.5% to $55.10 on expectations that it will soon join forces with WellChoice to become a powerhouse in the northeastern United States. According to The Wall Street Journal, WellChoice "is in advanced talks" with Oxford about an all-stock buyout priced 25% above where Oxford shares closed last week. The combined company would control nearly half of the New York City market that already represents a stronghold for both parties involved.

Citigroup analyst Charles Boorady promptly upgraded Oxford to buy because he believes the company has a 40% chance of being acquired by WellChoice or another bidder. But he also warned that Oxford shares could suffer if the transaction unravels.

"If the deal with WellChoice to acquire OHP falls through," he explained, "it may raise concern that something may be wrong at OHP."

But Advest analyst Robert Mains points to the acquisition as a real possibility that may finally give Oxford shareholders a strong return on their money.

"Oxford has long been subject to takeover rumors," stated Mains, who has a neutral rating on the stock. "It is the leading HMO in an attractive but limited market ... that delivers strong performance and lots of cash but trades at a below-peer multiple. ... This could be a positive for Oxford shareholders."

The merger would strengthen WellChoice also. Right now, WellChoice depends on huge government contracts that, if canceled, could significantly hurt earnings. Oxford would bring to the table more of the smaller contracts that WellChoice is seeking in an effort to diversify its client base.