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Strong Q3 Earnings for Cigna; Guides Up

Zacks Equity Research

Cigna Corp.’s (CI) third-quarter 2013 net operating earnings of $1.89 per share significantly outpaced the Zacks Consensus Estimate of $1.62 per share. Moreover, the results surged nearly 12% year over year.

Better-than-expected results came on the back of improved top-line and enrollment growth.

Including one-time items net income came in at $1.95 per share, up 21% year over year.

Cigna’s consolidated revenues came in at $8.0 billion, up 9.3% year over year. The improvement in revenues was the result of a 7% increase in premiums and fees in Global Health Care, 29% in Global Supplemental Benefits and 9% in Group Disability and Life. Top line was ahead of the Zacks Consensus Estimate of $7.8 billion.

Total benefits and expenses increased 10.0% year over year to $7.3 billion.

Cigna’s global medical customer base increased by 329,000 members year-over-year to 14.3 million members.  

Quarterly Review by Segment

Premiums and fees from Cigna's Global Health Care segment increased 7.0% year over year to $5.7 billion, owing to customer growth, specialty contributions, and renewal rate increases.

Operating earnings increased 1.2% to $424 million on the back of growth in targeted medical and specialty businesses, favorable prior-year reserve development, increased medical cost management and continued operating expense leverage.

Premiums and fees from the Global Supplemental Benefits segment climbed 29% year over year to $634 million, driven by acquisition of Great American Supplemental Benefits, Cigna Finansbank joint venture in Turkey and attractive customer retention and business growth, primarily in South Korea.

However, increased strategic investment costs led to a decline in operating earnings to $39.0 million from $40.0 million in the year ago quarter.

Premiums and fees from the Global Disability and Life segment climbed 9.4% year over year to $848 million. Operating earnings increased 39% to $92 million.

Share Repurchase Update

Cigna spent $500 million to buyback 6.4 million shares during the quarter.

Financial Update

Cigna ended the quarter with cash and short term investments of approximately $500 million compared with $700 million at Dec 31, 2012.

Shareholders’ equity increased to $9.9 billion as of Sep 30, 2013 compared with $9.8 billion as of Dec 31, 2012.

2013 Guidance

Following the better-than-expected earnings the company pulled up its 2013 earnings guidance to $ $6.70 to $6.90 per share from its earlier target of $6.25 to $6.65 per share. Consolidated earnings from operations is expected to be in the range of $1.90 billion to $1.96 billion.

Segment wise operating income from Global Health Care is projected between $1.575 to $1.625 billion, Global Supplemental Benefits between $185 million to $195 million and Group Disability and Life in the range of $290 to $305 million.

Global medical customer growth of 1% is estimated.

Cigna retains a Zacks Rank #2 (Buy).

Other players, Assurant Inc. (AIZ) with Zacks Rank #2 (Buy) beat the third quarter Estimates while Aetna Inc. (AET), with a similar rank missed the third quarter Zacks Consensus Estimates. Humana Inc. (HUM) also with same rank is scheduled to report third quarter earnings on Nov 6, 2013.

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