Health insurance company Cigna (NYSE:CI) announced better-than-expected revenue in Q4 CY2024, with sales up 28.4% year on year to $65.65 billion. The company expects the full year’s revenue to be around $252 billion, close to analysts’ estimates. Its non-GAAP profit of $6.64 per share was 15.1% below analysts’ consensus estimates.
Revenue: $65.65 billion vs analyst estimates of $62.79 billion (28.4% year-on-year growth, 4.5% beat)
Adjusted EPS: $6.64 vs analyst expectations of $7.82 (15.1% miss)
Adjusted EBITDA: $2.7 billion vs analyst estimates of $3.44 billion (4.1% margin, 21.7% miss)
Management’s revenue guidance for the upcoming financial year 2025 is $252 billion at the midpoint, in line with analyst expectations and implying 2% growth (vs 26.5% in FY2024)
Operating Margin: 3.3%, in line with the same quarter last year
Free Cash Flow Margin: 7.9%, up from 2.2% in the same quarter last year
Customers: 17.5 million, up from 17.41 million in the previous quarter
Market Capitalization: $84.37 billion
"While higher medical costs in our stop loss product impacted fourth quarter earnings, we are taking corrective actions to address these near-term pressures and we are simultaneously taking steps to further advance our long-term growth strategy," said David M. Cordani, chairman and CEO of The Cigna Group.
Company Overview
Serving both corporate clients and individual customers, Cigna (NYSE:CI) offers health insurance and pharmacy benefit management services that cover medical, dental, behavioral health, and vision needs.
Health Insurance Providers
Upfront premiums collected by health insurers lead to reliable revenue, but profitability ultimately depends on accurate risk assessments and the ability to control medical costs. Health insurers are also highly sensitive to regulatory changes and economic conditions such as unemployment. Going forward, the industry faces tailwinds from an aging population, increasing demand for personalized healthcare services, and advancements in data analytics to improve cost management. However, continued regulatory scrutiny on pricing practices, the potential for government-led reforms such as expanded public healthcare options, and inflation in medical costs could add volatility to margins. One big debate among investors is the long-term impact of AI and whether it will help underwriting, fraud detection, and claims processing or whether it may wade into ethical grey areas like reinforcing biases and widening disparities in medical care.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Cigna’s 10% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.
Cigna Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Cigna’s annualized revenue growth of 17% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Cigna Year-On-Year Revenue Growth
We can better understand the company’s revenue dynamics by analyzing its number of customers, which reached 17.5 million in the latest quarter. Over the last two years, Cigna’s customer base averaged 4.4% year-on-year growth. Because this number is lower than its revenue growth, we can see the average customer spent more money each year on the company’s products and services.
Cigna Customers
This quarter, Cigna reported robust year-on-year revenue growth of 28.4%, and its $65.65 billion of revenue topped Wall Street estimates by 4.5%.
Looking ahead, sell-side analysts expect revenue to grow 1.6% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
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Adjusted Operating Margin
Cigna was profitable over the last five years but held back by its large cost base. Its average adjusted operating margin of 5.6% was weak for a healthcare business.
Analyzing the trend in its profitability, Cigna’s adjusted operating margin decreased by 1.9 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 1.2 percentage points. We still like Cigna but would like to see some improvement in the future.
This quarter, Cigna generated an adjusted operating profit margin of 4.2%, down 1.4 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Cigna’s remarkable 9.9% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Cigna Trailing 12-Month EPS (Non-GAAP)
In Q4, Cigna reported EPS at $6.64, down from $6.79 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Cigna’s full-year EPS of $27.34 to grow 15.1%.
Key Takeaways from Cigna’s Q4 Results
We enjoyed seeing Cigna exceed analysts’ revenue expectations this quarter. On the other hand, EPS in the quarter missed and its full-year EPS guidance missed significantly. This is due to higher-than-expected medical loss ratios. Overall, this was a softer quarter. The stock traded down 8.5% to $277.37 immediately following the results.
