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Cigna (CI) Poised to Beat Q4 Earnings on Revenue Growth

Zacks Equity Research

Cigna Corp.’s CI fourth-quarter and full-year 2018 results, expected to be announced on Feb 1, should reflect substantial revenue and earnings growth, as well as strength across each of the business segments.

The Zacks Consensus Estimate for earnings is pegged at $2.53 per share (up 30.4% year over year) on revenues of $11.31 billion (up 7.6%).

During the quarter, Cigna completed its merger with Express scripts Holding Company, a pharmacy benefits manager. 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 costs. The deal will also provide a solid diversification benefit to the company’s existing businesses — administrative services, international operations, and disability and life insurance — that are already performing steadily. Though the acquisition will not accrue to fourth-quarter results, it will change the size and scope of Cigna, as well as position it well for long-term growth.

Factors Affecting Q4 Results

Operating revenues in Global Health Care are likely to increase on the back of commercial customer growth, premium growth and the expansion of specialty relationships. Membership growth will likely be led by higher enrollment in Select, Middle Market and Individual segments.

The company’s Supplemental Benefits business revenues should gain from continued innovation in product design and distribution strategies, coupled with business growth in targeted markets.

Group Disability and Life business should see higher contribution from solid performance in both disability and life businesses.    

It did not conduct additional share repurchases due to the closing of the Express Scripts transaction. Thus, the company’s bottom line will be bereft of any gains that might have accrued from share buyback.

Full-Year Expectation

For full-year 2018, the company expects revenues to grow nearly 8.5% from the 2017 level and earnings per share are projected in the range of $14.2-$14.4, which translates into year-over-year growth of 36-38%.

Earnings Surprise

Cigna boasts an impressive earnings surprise history, having surpassed estimates in each of the four reported quarters, with average positive surprise of 13.5%.

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Why a Likely Positive Surprise?

Our proven model indicates that chances of Cigna beating the Zacks Consensus Estimate are high as it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Cigna is +0.28%.

Zacks Rank: Cigna currently has a Zacks Rank #2 (Buy), which further increases the predictive power of ESP.

Other Stocks to Consider

Here are some other companies that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat in their upcoming quarterly release:  

Tenet Healthcare Corp. THC is expected to release fourth-quarter earnings on Feb 25. This stock has an Earnings ESP of +11.97% and a Zacks Rank #3.

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

Cardinal Health, Inc. CAH has an Earnings ESP of +2.75%. This Zacks Rank #3 company is expected to report fourth-quarter earnings on Feb 7.

Encompass Health Corp. EHC is expected to report fourth-quarter 2018 earnings on Feb 7. The stock has an Earnings ESP of +0.79% and a Zacks Rank of 3.

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