Cigna: Don't Be Alarmed by Soft Guidance

Feb. 3.11 | About: Cigna Corp. (CI)

Cigna (NYSE:CI) beat both revenues and guidance by a wide margin.

  • CI reported 4Q10 adjusted EPS of $1.11 Headline adjusted EPS of $1.15 included a roughly $0.04 EPS gain from the sale of a workers' comp & case management business. Depending on which figure you use, you have a .09-.14 beat.
  • Health segment earnings of $207 million were roughly 4% above Street estimates of about $200 million.
  • Medical claims payable net of reinsurance were down about $52 million sequentially to $1 billion, with the decline resulting from the $42 million in after-tax favorable reserve development. Importantly, medical claims payable are up about 40% from a year ago with premium growth of 21.2%. Operating cash flow of $1.7 billion for the year reflected a 1.3x multiple to net income and CI ended the year with $810 million in cash at the parent, up 71% from year-end '09 levels.
  • Revenue grew 17 percent to $5.43 billion. Analysts surveyed by FactSet forecast, on average, $5.38 billion in revenue.

Guidance - 2011 EPS range of $4.30-4.70 was below street expectations of 4.73. This is just a case of management being extremely conservative. (See also earnings call transcript.) This company is pulling an "Apple" (NASDAQ:AAPL) with guidance that does not likely reflect true earnings potential. My healthcare analyst friend with a top Wall Street firm (I cannot name names for confidentiality reasons) is maintaining his target of 4.83 for 2011 and recommending that clients ADD to positions here, not sell in a crazed frenzy because of conservative guidance. Cigna had a great quarter, I'd expect this to continue. I urge you not to be dissuaded as a result of this guidance.

Disclosure: I am long CI.