An analyst for JPMorgan upgraded shares of WellPoint Inc. and Cigna Corp. Monday, saying the stocks should trade higher as the details of a federal health care reform bill come into focus.
Analyst John Rex said the health insurers will have a difficult year in 2010 due to high medical costs, but profit margins could improve in the following years. Rex upgraded both stocks to "Overweight" from "Neutral," and the stocks made some of the biggest gains in their sector.
In afternoon trading, Cigna stock rose $2.17, or 7.2 percent, to $32.20. WellPoint shares added $2.15, or 4.1 percent, to $54.28.
On Saturday, the Senate voted to open debate on a health care reform bill that could extend insurance to 31 million Americans who do not have coverage. Elements like a public option remain unresolved, but Rex said the details are becoming clearer.
"Health benefit companies are still going to be around and relevant even in a post-reform world," he said. "We believe that the outlook only becomes somewhat improved from here." He added that WellPoint will benefit the most if individuals are required to buy insurance.
The analyst said high medical costs will hurt the insurers' 2010 results, but he said there is room for improved profit margins in the following years.