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Cigna (CI) Beats on Q2 Earnings and Revenues, Guides Up

Zacks Equity Research

Cigna Corp. CI came up with adjusted earnings of $4.3 per share in second-quarter 2019, surpassing the Zacks Consensus Estimate by 15.3%. Quarterly earnings were up 10.5% year over year.

Cigna posted revenues of $34.4 billion and beat the Zacks Consensus Estimate by 3%. Revenues grew 198% year over year on the acquisition of Express Scripts.

Among the revenue components, pharmacy revenues were $26.3 billion compared with $750 million in the year-ago quarter, premiums were up 8.9% year over year to $9.8 billion while fees increased 76% to $2.39 billion. The growth in pharmacy revenues was due to the acquisition of pharmacy benefit manager Express Scripts.

Cigna Corporation Price, Consensus and EPS Surprise

Cigna Corporation Price, Consensus and EPS Surprise

Cigna Corporation price-consensus-eps-surprise-chart | Cigna Corporation Quote

The SG&A expense ratio was 9% for second-quarter 2019, down from 23.5% in the year-ago quarter. 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 207,000 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’s debt-to-capitalization ratio improved to 47.2% as on Jun 30, 2019 from 50.9% as of Dec 31, 2018.

2019 Guidance Update

For 2019, the company expects earnings per share in the range of $16.6-$16.9, up from the prior range of $16.25-$16.65.

Total revenues are expected in the range of $136-$137 billion (versus $132.5-$134.5 billion expected earlier) and medical customers are projected to grow by approximately 200,000.

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

Our Take

Cigna is well poised for the long term due to its recent acquisition of pharmacy benefit manager, Express Scripts, which provides a nice diversification to its existing businesses, namely administrative services, international operations, and disability and life insurance.

The combination of Express Scripts’ pharmacy benefit business and 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 costs. The company has 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 #3 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other players in the medical space that have reported second-quarter earnings so far are UnitedHealth Group, Inc. UNH, Anthem Inc. ANTM and Wellcare Health Plans, Inc. WCG, each beating their Zacks Consensus Estimate by 4.1%, 0.65% and 5.12%, respectively.

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