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Cigna on Target

Shares rise after another strong quarter.

Cigna

(CI) - Get Cigna Corporation Report

reported a strong first quarter, boosted by healthy membership growth, and raised its outlook for the current year.

The giant insurance company posted operating profits of $2.67 a share -- well ahead of the $2.52 consensus estimate -- although net income fell 18% to $289 million because of a big investment gain last year. Other key metrics looked solid, however.

Perhaps most importantly, revenue climbed 14% to $4.4 billion -- also beating Wall Street expectations -- as Cigna's medical memberships increased by 4.7% during the latest quarter. The company expects even stronger membership gains, of 5% to 6%, over the course of the full year.

That growth stands out in the fiercely competitive industry, where other health insurers keep missing their own enrollment targets.

"We generated strong earnings in each of our businesses in the first quarter of 2007," Cigna CEO Edward Hanway boasted. Moreover, "looking ahead, we are confident that we will continue to succeed in the marketplace by using our strengths and differentiated capabilities to enhance and improve the health, well-being and security of our members."

Cigna expects ongoing share repurchases to help out as well. To reflect its improved outlook, the company raised its full-year profit guidance to $10.25 to $10.95 a share. Analysts already expected profits to fall near the middle of that range.

Cigna's stock rose 80 cents to $156.01 Wednesday. The shares, which are within a dollar of a record high right now, are set for a 3-for-1 split later on this month.

JPMorgan analyst William Georges was looking for a solid quarter from Cigna. Georges assumed that Cigna would report profits near the high end of the company's own targets even if it fell a bit shy of Wall Street's expectations.

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Georges noted that Cigna has already been outperforming the managed care group after the company's pricing missteps last year and predicted that the momentum will continue going forward. He pointed to strength in two Cigna divisions -- national accounts and middle markets -- when explaining the company's recent run.

Georges looked for both of those units to deliver strong performances this time around as well.

"Cigna has improved its pricing, discounts, access and consumerism capabilities," Georges explained last week. Thus, "we believe the company is taking market share" from its competitors.

Georges, for one, sees that favorable trend continuing. Moreover, he feels that Cigna can avoid other pitfalls suffered by the industry -- and even the company itself -- as it continues forward with its rebuilding process.

"Pricing issues seem to have played out, and Cigna has improved its competitive position from a year ago, in our view," wrote Georges, whose firm has investment-banking ties to the company. Furthermore, "we also believe

UnitedHealth's

(UNH) - Get UnitedHealth Group Incorporated Report

(consumer-directed health plan) cost issues were company-specific, and we do not expect read-through to Cigna's first-quarter results."

All in all, Georges seems to be warming up to the company's stock.

"Improved commercial business and limited government exposure position Cigna well among national plans," he stated. "We reaffirm our neutral rating

but have a positive bias towards Cigna shares given evidence of a turnaround."