Cigna Raises Forecast as Acquisition Expands Medicare
Cigna Corp., the third-biggest health insurer by market value, raised its forecast for 2013 profit and said fourth-quarter earnings swelled 49 percent, boosted by higher enrollment in its Medicare plans for seniors.
Earnings, excluding one-time items, may be $5.85 to $6.30 a share this year, the insurer said in a statement today, an increase from its November forecast of $5.80 to $6.25. The Bloomfield, Connecticut-based carrier beat analysts’ estimates for the fourth quarter, helped by an 11 percent jump in enrollment for its health plans.
Chief Executive Officer David Cordani spent $3.8 billion last year for Healthspring Inc., expanding Cigna’s presence in the growing market for government-backed Medicare plans. The 2013 outlook leaves room for bigger gains, given Cigna’s assumption that medical claims will rise faster this year, said Sarah James, a Wedbush Securities analyst in Los Angeles.
The forecast “screens as conservative, in our opinion, based on survey work showing continued low commercial utilization” for medical care, James said in a research note. UnitedHealth Group Inc., the biggest health insurer, and Aetna Inc. have said health-care costs will rise at the same pace as last year.
Cigna became the latest health insurer to express optimism about earnings in 2014, even as major provisions of President Barack Obama’s health-care law kick in. Starting next year, the law prevents insurers from charging higher rates of people with pre-existing medical conditions and limits the profit carriers can take out of Medicare plans, among other changes.
Cordani, on a conference call with analysts, said the company nevertheless expects to increase net income and per- share earnings. Employers still see value in Cigna’s ability to rein in health-care costs, the CEO said.
“The change in the marketplace we see as creating more opportunity than disruption for us,” he said.
Cigna rose 2.8 percent to $61.35 at the close in in New York. The shares gained 42 percent in the past 12 months.
Fourth-quarter net income rose to $406 million, or $1.41 a share, from $273 million, or 98 cents, a year earlier, the company said. Earnings, excluding one-time items, of $1.57 topped by 8 cents the average of 16 analysts’ estimates compiled by Bloomberg.
Revenue climbed to $7.62 billion from $5.43 billion a year earlier, as membership in Cigna’s medical plans jumped to 14 million.
The insurer said Feb. 4 that it had reached a $2.2 billion deal to shift its death-benefits liabilities to Warren Buffett’s Berkshire Hathaway Inc. Cigna had been trying for more than a decade to exit the business, whose volatile costs had become a drag on its stock price, said Carl McDonald, a Citigroup analyst in New York, in a Feb. 4 note to clients.
Under the deal, Berkshire will assume as much as $4 billion in liabilities.
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