A strange thing happened on Friday morning: Cigna, a managed-care company, reported its earnings, and to everyone’s surprise, its stock jumped up. This positive market reaction is noteworthy considering the recent steep selloffs that greeted the earnings reports of other health insurance giants like Humana and UnitedHealth Group.
What sets Cigna Group apart from its competitors is its approach to the burgeoning Medicare Advantage business. Unlike other insurers, Cigna has largely eschewed this government-funded health plan option for older Americans. The risks associated with Medicare Advantage plans became evident in January when there was a sharp increase in hospital and doctor office visits among U.S. seniors, leading to higher costs for insurers and concerns about profitability.
In line with its strategy, Cigna recently sold off its relatively small Medicare Advantage business as part of a $3.7 billion deal. This move seems to have paid off, as Cigna Group’s stock climbed after reporting earnings for its fiscal fourth quarter that exceeded expectations.
The company recorded revenue of $51.1 billion in the quarter, surpassing the FactSet consensus estimate of $48.9 billion. Earnings per share were $6.79, beating the consensus estimate of $6.54. Additionally, Cigna’s medical loss ratio for the quarter, which tracks the proportion of premiums paid out for medical expenses, stood at 82.2%, better than the 84% ratio projected by analysts.
Cigna Group’s success in a challenging market highlights the value of strategic decision-making and a cautious approach towards new industry trends. While other insurers navigate the uncertainties of Medicare Advantage, Cigna stays ahead by focusing on its core strengths and delivering impressive financial results.
Lower Medical Loss Ratios Impact Profits
Lower medical loss ratios, or MLRs, can significantly affect the profitability of healthcare companies. In the latest quarter, Humana, with a substantial focus on Medicare Advantage, reported an MLR of 91.4%. This result was worse than the estimated consensus of 89%.
Cigna’s Improved Position
The recent performance of Cigna highlights its favorable position among its peers that are also focused on Medicare Advantage. While Humana shares experienced a decline of 17.9% and UnitedHealth shares were down 3.7% in 2023, Cigna shares saw a 2.6% increase by the end of trading on Friday.
Positive Guidance from Cigna
Cigna’s guidance aligns closely with the estimated consensus. The company expects to generate at least $235 billion in revenue in 2024, slightly surpassing the FactSet estimate of $228.7 billion. Additionally, Cigna anticipates adjusted income from operations to be at least $28.25 per share, which aligns with the consensus estimate of $28.29.
Upward Movement in Cigna Shares
After initially rising by as much as 4% earlier in the morning, Cigna shares experienced a 2.8% increase on Friday.
Analyst Perspectives
Though overall positive, David Windley, an analyst at Jefferies, offered a slightly less enthusiastic view. He mentioned that Cigna’s MLR guidance for 2024, ranging from 81.7% to 82.7%, is slightly higher than the consensus. The FactSet estimate for the company’s 2024 MLR stands at 81.8%. Windley explained that these details might temper the market’s reaction to Cigna’s results.
