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Cigna (CI) Beats Q1 Earnings Estimates, Raises 2019 View

Zacks Equity Research

Cigna Corp. CI came up with adjusted earnings of $3.9 per share in first-quarter 2019, surpassing the Zacks Consensus Estimate by 4.3%. However, the same was down 5.1% year over year.

Cigna posted revenues of $33.43 billion and missed the Zacks Consensus Estimate by 1.5%. Revenues grew 192% year over year on the acquisition of Express Scripts.

Premiums were up 11% year over year to $10 billion while fees increased 79% to $2.45 billion.

The SG&A expense ratio was 9.3% for first-quarter 2019, down from 23.5% for the first quarter of 2018. The decline was mainly led by business mix changes, resulting from the Express Scripts combination, and the health insurance tax suspension.

The company’s medical enrollment grew by 224,000 lives from the prior-year quarter to 16.99 million customers, driven by growth in Government, Commercial and International markets. Moreover, the acquisition of Express Scripts, completed last December, led to an increase in Pharmacy and Medicare Part D members.

Cigna Corporation Price, Consensus and EPS Surprise

 

Cigna Corporation Price, Consensus and EPS Surprise | Cigna Corporation Quote

Strong Segmental Performance

Health Services: Operating revenues of $22.4 billion were up from $1.07 billion in the year-ago quarter owing to the acquisition of Express Scripts

Adjusted operating earnings were $994 million, up from $83 million in the year-ago quarter, driven by organic growth in pharmacy customers since the beginning of the year, and strong adjusted pharmacy script volumes and performance in specialty pharmacy care.

Integrated Medical: Operating revenues of $9.2 billion were up 12.8% year over year due to organic growth in Commercial and Government business.
Operating income increased 15.6% from the year-ago quarter to $1.2 billion due to strong medical and specialty contributions and continued effective medical cost performance.

International Markets: Operating revenues of $1.39 billion were up 4% year over year, reflecting continued business growth, partially offset by some impact from unfavorable foreign currency movements.

Adjusted operating income decreased 5.1% year over year to $206 million due to unfavorable foreign currency impact.

Global Disability and Life: Operating revenues of $1.3 billion were up 2% year over year. However, operating income decreased 28% year over year to $84 million, due to unfavorable disability claims, partly offset by strong life results.

Cigna’s debt-to-capitalization ratio improved to 48.8% at Mar 31, 2019, from 50.9% at the end of Dec 31, 2018.

2019 Guidance Update

For 2019, the company expects earnings per share in the range of $16.25-$16.65, up from the prior range of $16-$16.50.

Total revenues are expected in the range of $132.5-$134.5 billion (versus $131.5-$133.5 billion earlier) and medical customers are projected to grow within 0.3-0.4 million lives.

Medical care ratio is expected in the range of 80.5-81.5%.

Our Take

We remain bullish on Cigna due to its recent acquisition of pharmacy benefit manager, Express Scripts, which provides a nice diversification to the company’s existing businesses, namely administrative services, international operations, and disability and life insurance, which are already performing strongly.

The combination of Express Scripts’ pharmacy benefit business with Cigna’s health insurance business will help control drug pricing cost to a large extent, which is one of the biggest components of soaring medical cost. The company has a better control over its medical cost compared with other players in the industry. The decline in medical costs should further aid its margins.

Another distinguishing feature of the company is the international business, which provides additional diversification opportunities. Its strong balance sheet is another positive.

Zacks Rank and Other Releases

Cigna currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other players from the healthcare industry that have reported first-quarter earnings, the bottom line of Anthem, Inc. ANTM, Centene Corporation CNC and UnitedHealth Group Incorporated UNH beat the Zacks Consensus Estimate by 2.9%, 5.3% and 3.6%, respectively.

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