Managed care companies enjoyed a healthy bounce on Monday.

Cigna ( CI) surged to a 52-week high after promising robust first-quarter profits. Oxford ( OHP) also hit a fresh peak after The Wall Street Journal reported that the company is in play. WellChoice ( WC), named as Oxford's suitor, stood out as a rare decliner among the health insurance group.

Cigna posted the biggest gain in the sector, jumping 12% to $67.84 after the company raised its first-quarter guidance far above current Wall Street estimates. The company said it expects to deliver first-quarter earnings of $1.75 to $1.95 per share, which would topple the consensus estimate of $1.33 per share. It also raised the bar for full-year earnings, although it gave no specific EPS target because share repurchases will have an unknown impact on the final number.

Cigna credited its big health insurance division for the upside surprise.

"Our increased earnings expectations are a strong indicator of our success in managing medical costs and improving our overall operating efficiency," stated Cigna CEO Edward Hanway. "The first quarter of 2004 marks the third consecutive quarter of fundamental improvements in Cigna HealthCare."

The division benefited from lower medical costs, driven by reduced utilization as well as expense cutbacks and a "significant" prior-period development.

Merrill Lynch analyst Doug Simpson quickly raised his projections for the company to the middle of management's new guidance. He also took a more optimistic stand on the industry in general.

"This announcement should bode well for first-quarter medical cost trends in the industry and specifically for other large-cap names such as Anthem ( ATH) and United ( UNH)," wrote Simpson, who maintained his neutral rating on Cigna.

Goldman Sachs analyst Matthew Borsch had already grown more upbeat about Cigna even before this week's news. Early Monday, Borsch reinstated his coverage of Cigna with an in-line rating -- up from the underperform rating he suspended last summer -- after growing more confident in the company following recent meetings with management. He cited improvements in the company's medical trends and expenses as reasons for his more favorable outlook.

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