On Mar 19, we issued an updated research report on U.S. health
In the fourth quarter of 2013, Cigna reported top-line growth
evidenced with revenues increasing about 7% to $8.2 billion. On
the other hand, the bottom line missed expectations as expenses
outgrew revenue increase. The company's net operating earnings of
$1.39 per share missed the Zacks Consensus Estimate by 6.1% and
were also down 11.5% year over year.
Cigna boasts of superior operating performance along with a
diversified business profile. The company has forayed into the
much sought-after business of serving the senior population with
the acquisition of HealthSpring.
Moreover, Cigna has improved its business profile by entering
into a reinsurance transaction with
Berkshire Hathaway, Inc.
Cigna has also made a move forward by improving its debt profile.
It has brought down its leverage ratio that traditionally stayed
around 45%, to about 33% as of Dec 31, 2013. Steps taken by the
company such as freezing of pension plans and making higher
contribution to reduce the unfunded liability has helped improve
the company's leverage ratio.
Cigna also remains more reform-resistant than its peers,
primarily because 85% of its U.S. healthcare business comprises
administrative services only (ASO). This limits the company's
exposure to unanticipated increase in medical utilization.
Other positives like limited exposure to risk associated with
health insurance exchanges, a well-diversified product profile,
and a growing membership base along with niche market presence in
the U.S. augur well for the company.
However, management expects medical cost trend in the range of
5-6% for 2014 which is higher compared to less than 5% in 2013.
The company's medical cost trend is likely to increase due to
augmented medical utilization, which in turn, will eat into
Continued pressure in Medicare Advantage persists. Exposure to
commercial mortgage loans and real estate loans also poses threat
for Cigna going forward.
Other Stocks to Consider
While Cigna carries a Zacks Rank #3 (Hold), other better-ranked
insurance stocks worth considering are
Old Republic International Inc.
) with a Zacks Rank #1 (Strong Buy) and
American International Group Inc.
) with a Zacks Rank # 2 (Buy).
AMER INTL GRP (AIG): Free Stock Analysis
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
CIGNA CORP (CI): Free Stock Analysis Report
OLD REP INTL (ORI): Free Stock Analysis
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