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Cigna Earnings: Medical Insurance Momentum Growing While PBM Preps for Centene Onboarding

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Narrow-moat Cigna CI turned in strong third-quarter results and mildly raised its 2023 outlook. At first glance, we will likely keep our $344 fair value estimate intact. Shares appear moderately undervalued, probably reflecting the renewed regulatory risks in its pharmacy benefit management business. However, those risks appear manageable, as PBMs like Cigna will probably be able to convert most of their rebate or spread-based contracts (a low-double-digit percentage of profits) to fee-based relationships, if necessary.

In the quarter, Cigna mildly exceeded expectations, as revenue grew 8% and adjusted EPS increased 12%. The firm’s Evernorth business, which includes its PBM operations, delivered 8% revenue and 6% adjusted operating income growth, despite a slight contraction in prescriptions filled and ongoing investments related to the recently awarded Centene contract prior to the 2024 implementation. These solid results reflect expanding Evernorth specialty offerings, which are more lucrative than its more traditional services. In the firm’s medical insurance business, membership grew 9% year over year, led by its individual exchange, commercial, and Medicare Advantage businesses. The individual and commercial businesses look likely to remain strong in the near term, too, as renewed Medicaid redeterminations force people to find insurance outside that government program. On that strong membership growth, insurance operating profits grew 16% in the quarter, as Cigna’s medical cost ratio improved and investment income expanded.

Because of these strong results, Cigna increased its 2023 adjusted EPS goal by a nickel to at least $24.75, and raised its operating cash flow goal by $1 billion to at least $10.5 billion. Management also reiterated its EPS goal of $28 for 2024, too, which may exceed its 10% to 13% long-term growth goal with the onboarding of the Centene PBM contract. Our expectations remain roughly in line with management’s expectations.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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