Cigna Sees Brighter Future, Several Growth Initiatives - Analyst Blog

On Aug 12, 2014, we issued an updated research report on U.S. health insurer Cigna Corp. ( CI ). The company's second-quarter 2014 net operating earnings came in at $1.96 per share, beating the Zacks Consensus Estimate of $1.85. Earnings were also up 10.1% year over year. Cigna's better-than-expected earnings came from premium growth across all its business segments.

Cigna's consolidated revenue came in at $8.7 billion, up 9% year over year and above the Zacks Consensus Estimate of $8.2 billion. The improvement in revenues came from an increase in premiums and fees across all segments.

Cigna is a niche player in the health insurance market with a well diversified business profile and reach in different markets.

Cigna has also gained significant presence in the fast-growing Medicare Advantage market with the acquisition of HealthSpring. Though the company faces headwinds from medicare reimbursement cuts in 2014, long-term growth is expected as millions of retirees (baby boomers) create huge demand for MA insurance.

The company also has significant overseas business, which is generating strong earnings. Cigna expects its expansion in the international markets to contribute meaningfully to its long-term growth.

The company's Pharmacy Benefit Management (PBM) Services Agreement with Catamaran Corporation contributed to earnings in the first six months of 2014, through improved clinical management as well as purchase and administrative efficiencies. The company expects this earnings growth trend to continue through 2014.

Also, Cigna's Collaborative Accountable Care initiatives have enabled it to contain its medical costs.

Its organizational efficiency plan aimed at reducing overall expense is also expected to generate a large portion of the expected total expense saving of $45 million in 2014.

Cigna's strong balance sheet and high levels of free cash flow give it enough flexibility to deliver additional shareholder value.

On the flip side, Cigna is expected to witness a rise in medical costs as members increase utilization of health care services. While low utilization over the past three years has driven the bottom line, an increase in utilization this year will erode margins to some extent.

Zacks Rank & Other Stocks

Cigna currently holds a Zacks Rank #2 (Buy). Other players worth considering include BB Seguridade Participa ( BBSEY ), FBL Financial Group Inc. ( FFG ) and Radian Group Inc. ( RDN ). All these stocks carry the same Zacks Rank as Cigna.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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