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Cigna Q3 Earnings Beat on Higher Revenues; Narrows View

Zacks Equity Research
Updated

Cigna Corp. CI reported third-quarter 2015 operating net earnings of $2.28 per share, comfortably beating the Zacks Consensus Estimate of $2.18. Earnings were up 11% year over year.

Better-than-expected earnings were driven by strong revenue growth, continued favorable medical and operating costs in the Global Healthcare segment, and an improvement in disability and life claims experience in the Group Disability and Life segment.

Including one-time items, net income came in at $2.10, up 4.5% year over year.

Cigna’s consolidated revenue came in at $9.4 billion, up 7% year over year and above the Zacks Consensus Estimate of $9.3 billion. The improvement was backed by higher contribution from its segments, namely Global Health Care, Global Supplemental Benefits and Group Disability and Life.

The health insurer’s global medical customers were 14.8 million, up from 14.3 million members in the year-ago quarter.

Premiums of $7.3 billion increased 7.3% year over year. All the segments of the company – Global Health Care, Global Supplemental Benefits and Group Disability and Life – registered premium growth.

Quarterly Review by Segment
 
Premiums and fees from Cigna's Global Health Care segment increased 8.2% year over year to $6.6 billion, owing to rate actions, specialty contributions and customer growth in the Government businesses. Operating earnings were $482 million, up 4.8% year over year.  
 
Premiums and fees from the Global Supplemental Benefits segment climbed 2.4% year over year to $761 million on customer growth and strong retention, but were partially offset by adverse foreign currency movements. Operating income decreased 28% year over year to $62 million.

Cigna's Global Disability and Life segment’s premiums and fees also increased 7.8% year over year to $980 million on the back of growth in both disability, accident and life businesses. Operating earnings increased 57% year over year to $84 million.

Financial Update
 
Cash and short-term investments were $980 million at Sep 30, 2015, up from $400 million at Dec 31, 2014.
 
Shareholders’ equity increased 5.3% year over year to $11.8 billion as of Sep 30, 2015.  

Cigna spent $515 million to repurchase 4.3 million shares through the first three quarters of 2015.

2015 Guidance Tightened
 
Cigna tightened its 2015 earnings guidance. It now projects income from operations in the range of $2.19 billion to $2.24 billion compared with the previous estimate of $2.16 billion to $2.24 billion. Earnings per share are expected at $8.40 to $8.60 instead of the previous range of $8.30 to $8.60. The company also projects 9% revenue increase and 3% growth in the number of global medical customers.

Cigna expects to maintain its growth momentum going into 2016.

For fourth-quarter 2015, Cigna targets income from operations between $420 million and $470 million, or between $1.61 and $1.81 per share.

Segment wise, operating income from Global Health Care is expected at $1.81–$1.84 billion instead of $1.79–$1.83 billion projected earlier.
 
Cigna's Global Supplemental Benefits is expected to deliver operating income of $245 million to $255 million in place of the earlier guidance $240 million and $260 million. Operating income for Group Disability and Life is now expected between $320 million and $300 million instead of $320 million and $340 million guided earlier.

Commercial Medical Care Ratio projection was reiterated at 77.5% to 78.5% while Government Medical Care Ratio is still estimated between 84.5% and 85.5%. The Global Health Care Operating Expense Ratio is expected at 21.5%.
 
Our Take
 
Cigna’s reported-quarter results demonstrate its continued operating strength. The company has delivered positive surprises in 11 out of the past 12 quarters. Going forward, we expect the company to continue posting favorable results on solid revenue growth in government business, disciplined expense management and effective medical cost management. Its strong balance sheet should also support its results.

Cigna carries a Zacks Rank #3 (Hold).
 
Performance by Other Multi-Line Insurers

The bottom line at Assurant, Inc. AIZ and CNO Financial Group, Inc. CNO outperformed their respective Zacks Consensus Estimate while The Hartford Financial Services Group, Inc. HIG missed the same in the third quarter.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ASSURANT INC (AIZ): Free Stock Analysis Report
 
CIGNA CORP (CI): Free Stock Analysis Report
 
HARTFORD FIN SV (HIG): Free Stock Analysis Report
 
CNO FINL GRP (CNO): Free Stock Analysis Report
 
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Zacks Investment Research