Will Cigna, Healthways part ways? Too early to say

The Tennessean, August 4, 2011
Healthways Inc.'s contract with its biggest customer, Cigna, doesn't expire for another 18 months, but there's one stock analyst out there suggesting the Franklin-based company runs the risk of losing that big fish. The comments by JMP Securities analyst Constantine Davides caused shares of the Franklin-based disease management firm to drop 13 percent a couple of weeks ago from its recent high of $17.51 per share. On Wednesday, Healthways was trading in the neighborhood of $13.85 a share on Nasdaq, up slightly during a bumpy day on Wall Street. "Healthcare is changing rapidly and it's a different world today than the last time they renewed the contract," said Davides, a Boston-based analyst who says the Cigna work accounted for roughly 19% of Healthways revenues last year. So, it would be a lot of dough to lose. He downgraded Healthways to "market underperform" and set a target price of $13 per share—meaning that's where he thinks the stock is headed. In support of his thesis, Davides cited recent moves by other big health plans to bring once-outsourced services in-house. They include UnitedHealth Group's move to not renew a pharmacy benefits contract with Medco Health Solutions, and Humana bringing more of its disease management services in-house.

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