Cigna Profit Climbs on Medicare Boost From Healthspring
Cigna Corp. (CI), the third-biggest U.S. health insurer by market value, raised its 2012 forecast and said profit more than doubled after acquisitions boosted revenue from government-backed Medicare plans. The earnings pushed the shares to their best single-day gain in almost a year.
Cigna raised its full-year profit projection to $5.70 to $5.90 a share, above the average analyst prediction of $5.55, according to a statement today, and Chief Executive Officer David Cordani said that sales and earnings will rise next year as well. The carrier also announced a restructuring that includes 1,300 job cuts, about 4 percent of the Bloomfield, Connecticut-based company’s workforce.
Cigna bought insurer Healthspring Inc. for $3.8 billion a year ago and in May purchased Great American Supplemental Benefits Group, deals that expanded its business in Medicare plans for the elderly. Aetna Inc. (AET) and WellPoint Inc. (WLP) followed with similar acquisitions this year, as insurers prepare for slimmer profit margins in private-sector plans under President Barack Obama’s health-care overhaul.
“It is a very strong quarter that has exceeded expectations in all segments,” Ana Gupte, an analyst with Sanford C. Bernstein & Co. in New York, wrote today in an e-mail. “Health-care earnings are particularly strong with growth and solid metrics in the Medicare and commercial segments.”
Cigna gained 4.5 percent to $53.27 at the close in New York, the biggest single-day increase since Nov. 30, 2011, and the continuation of a two-day rally that has pushed the company’s market value ahead of Hartford, Connecticut-based Aetna. Aetna and Minnetonka, Minnesota-based UnitedHealth Group Inc. (UNH), the biggest insurer, beat profit estimates last month, citing increased Medicare revenue and medical costs that grew less than expected.
The No. 2 plan, Indianapolis-based WellPoint, is scheduled to report earnings on Nov. 7.
Cigna’s third-quarter net income jumped to $466 million, or $1.61 a share, compared with $183 million, or 67 cents, a year earlier, when the company took a charge for a discontinued business unit. Earnings excluding one-time items of $62 million were $1.69 a share, beating by 33 cents the average of 17 analyst estimates compiled by Bloomberg.
Sales rose to $7.36 billion from $5.61 billion a year earlier, and Cigna’s medical customers grew by 1.25 million in the first nine months of 2012. The insurer raised its full-year forecast from an August projection for adjusted profit of $5.25 to $5.60 a share.
Cigna also announced a “realignment and efficiency” plan that it said would save the company $60 million annually. The changes include cutting jobs across the company, including 300 in a European health and accident insurance business that “has not performed as well as we would have hoped,” said Matthew Asensio, a spokesman, in a telephone interview.
Cordani told analysts on a conference call the savings will be used to expand into new markets and upgrade technology, among other steps.
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