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Cigna (CI) Q3 Earnings & Revenues Beat Estimates, View Up

Zacks Equity Research

Cigna Corp. CI came up with adjusted earnings of $4.54 per share in third-quarter 2019, surpassing the Zacks Consensus Estimate by 3.84%. Quarterly earnings were up 18% year over year.

Cigna’s revenues of $35.8 billion beat the Zacks Consensus Estimate by 5%. Revenues grew 214% year over year owing to the acquisition of Express Scripts.

Among the revenue components, pharmacy revenues were $25.9 billion compared with $747 million in the year-ago quarter, premiums were up 10.5% year over year to $9.9 billion while fees increased 68% to $2.3 billion. The growth in pharmacy revenues was backed by 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 9.2% for third-quarter 2019, down from 23.8% 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 212,000 lives from the prior-year quarter to 17.07 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 46.4% as on Sep 30, 2019, from 50.9% as of Dec 31, 2018.

2019 Guidance

For 2019, the company expects earnings per share in the range of $16.8-$17 compared with the previous guidance of $16.6-$16.9.

Total revenues are expected to be $138 billion (versus $136-$137 billion expected earlier) and medical customers are projected to grow by approximately 200,000.

Medical care ratio is expected in the range of 80.8-81.2% versus previous estimate of 80.5-81.5%.

2020 Guidance

For 2020, the company projects Health Services’ retention rate of 97% for the 2019 selling season for pharmacy services. Health Services’ adjusted pharmacy scripts are expected to grow between 25 million and 35 million organically in 2020.

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 (Hold).

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 third-quarter earnings so far are UnitedHealth Group, Inc. UNH, Anthem Inc. ANTM and Wellcare Health Plans, Inc. WCG, each beating the Zacks Consensus Estimate by 3.47%, 0.62% and 39.95%, respectively.

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