CIGNA Beats, Ups Outlook - Analyst Blog

CIGNA Corp.’s (CI) second quarter earnings of $1.38 per share were substantially ahead of the Zacks Consensus Estimate of $1.01. The results also compare favorably with earnings of $1.14 per share reported last year. Results benefited from improved contribution from Health Care, Disability & Life and International segments.

Total revenue of $5.4 billion was ahead of the Zacks Consensus Estimate of $5.1 billion. It was also up 20% from $4.5 billion in the prior-year quarter, driven by higher business retention coupled with new account sales.

Premiums and fees increased 12.2% to $4.5 billion, led by an increase in premiums from Health Care and International segments, partially offset by lower premiums from the Disability and Life segment. Net investment income increased 8.8% to $283 million, primarily due to higher invested assets and partially offset by lower yields.

CIGNA's net income of $294 million or $1.06 per share suffered due to losses from its discontinued business. In the last year quarter, the company had earned $435 million or $1.58 per share in net income.

Book value increased 33% year over year to $21.89, led by favorable underwriting results. The company spent $123 million during the quarter for buying back 3.7 million shares. Cash and cash equivalents increased 51.5% from the end of the year 2009 to $720 million.

Segment Results

Premium and fees in the Health Care segment increased 15% year over year to $3.3 billion, largely due to net membership growth of 176,000, which included a higher mix of commercial and Medicare related risk businesses. However, the change in business mix also led to an increase in medical claims expense to $1.0 billion, an increase of 40% from $715 million at year-end 2009.

Premiums and fees in the Disability and Life segment decreased modestly by 1.6% year over year to $650 million, reflecting lower premiums from its Life business, partially offset by an increase in premiums from Disability business.

Premiums and fees in the International segment increased 17% year over year to $542 million, mainly attributable to new sales growth in the life, supplemental health insurance, particularly in South Korea, and membership growth in the expatriate employee benefits business. Its International business growth augurs well, and we view it as a catalyst for future growth.

2010 Outlook

Management expects full-year operating earnings to lie between $3.10 and $4.40 per share, up from $3.75−$4.15 in the previous guidance. Consolidated operating income is expected to come around $1.13 billion to $1.21 billion ($1.05−$1.15 billion previously) out of which $765 to $825 million ($720−$790 million previously) will come from the Health Care segment while $510−$530 million ($475−$505 million previously) is expected to come from Group Disability and Life & International segments. Medical membership is expected to grow by approximately 3%.

CIGNA has reported favorable results for the first half of 2010. However, concerns regarding the state of the global economy and the impact of the US health care reform remain. But we note that CIGNA is more "reform resistant" than other health insurers due to its relatively low enrollment in Medicare Advantage and individual or small group insurance products, two product lines are seen as vulnerable to an overhaul push.

Also, a strong capital position, diverse revenue operations, and continual share repurchases bode well for the company. We maintain a Neutral rating on the shares which carry a Zacks #3 Rank, indicating no clear directional pressure in the near term.
 
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